NEXUS – WHEN ARE YOU “DOING BUSINESS” IN A STATE OR COUNTRY?
Google is one of the biggest collection of companies in the world. Wisely, Google has divided itself into many companies to deal with the different tax laws not only in the 50 States of the United States but in dealing with worldwide taxes. By using proper tax planning, Google is effectively avoiding taxes in many countries.
In order to be subject to taxation in a given country, a business must have “nexus” in that country. The word Nexus comes from the same root as “connection”. Typically that means a company must have an actual physical presence in the country.
Google has been very wise in its tax planning. It has its main business in Bermuda, a low tax country, and in the Republic of Ireland, also a low tax country. Google has set up a separate entity in the United Kingdom as a “technology and marketing” company. The idea is that technical services are performed by the UK subsidiary as well as general marketing services. No sales services are performed. Rather sales are referred to the Irish company. The sales transaction is technically made in Ireland. The Irish company then pays the British company for the technological development services as well as marketing and gives the company a fee for services which includes a small profit. The Irish company reaps the profit from the sales and transfers it to the Bermuda company at a low tax cost.
This ingenious method has enabled Google to pay a tax of $16mil on $18 billion of sales in the UK. This technique can also be useful for you other US companies that do not want nexus in various states to avoid state corporate taxes and state sales taxes. This sophisticated tax planning takes advantage of the laws of the jurisdiction in order to allow a company like Google to keep the money it earns.
The full Reuters article is fascinating:
Click Here for Reuters Article