The real reason Google bought Motorola

I think we all know that Google's pretty good at, um, obeying tax laws to the letter. For example, they've paid an entire £8m in UK corporation tax on revenues of some £6bn from 2004 to 2010. Here the game is wrapped up in things like the "Double Irish" and the "Dutch Sandwich", entirely legal moves which put the revenues …

[Anonymous Coward]

At last, the thinking man's analysis!

After all the tired attack pieces more or less jeering "stupid Google!" on a daily basis - there'll surely be another later on today ("No! Stupid Google, really. I'm not wrong!"), it turns out to be "clever Google!" after all. Like, gosh, Google might have thought this through a bit more than some bored punter in the iStore for five minutes getting tempted to "splurge" on an iThing because their credit card hasn't had enough action recently.

Mr Worstal, you've reversed the decline. Nice to know that someone is paying attention at Vulture Towers.

[Anonymous Coward]

But they still do 'evil'...

Just want to point out one interesting thing...

If Google has 12bln in the US, then they can buy Motorola without a problem.

If Google has to reach in to their foreign stash of cash, they have to pay taxes on that cash first then do the purchase.

Google and like every other large company takes advantage of off shore tax loopholes.

So they are just as evil as the rest of them.

[Anonymous Coward]

Re: But they still do 'evil'...

I'm not disputing that Google do "evil", and it is worthwhile criticising the company, but the recent attack pieces have been less about actual "evil" (Google's copyright subversion antics around book scanning, for example) than the usual wafts and whispers of conspiracy and claims of stupidity ("stupid Google doesn't understand television!"), much of which probably serves to benefit other "evil" companies than it does to confront the "evil" in question.

[Field Marshal Von Krakenfart]

$12Bn

If Dr Evil PLC spends their 'merkin money on buying Motorola guess what happens, it's a capital acquisition and is therefore......

wait for it.......

can you guess what happens......

you'll never believe it......

IT'S TAX DEDUCTABLE!!!!!

[Anonymous Coward]

Borrow it

Technically, they'd borrow the money from their offshore cash pile company as a formalised loan agreement. They can then charge interest payments on the loan to the US and use these as another cost against the US business so sucking even more profits out of the US for free. Neat isn't it!

[zb]

hmmm... maybe

But if they pay almost no taxes already how are they going to get the benefit of the tax losses they bought?

[Anonymous Coward]

Re: hmmm... maybe

Google is accumulating billions of dollars profits outside the US, and it houses this in low tax countries. It is taxed on this profit by the US if it repatriates it to the US.

The money is less useful for Google than if it were in the US - it is hard to buy a company, for instance, with overseas profits, without falling foul of the US tax authorities.

By offsetting losses accumulated overseas by Motorola against overseas profit, Google makes less profit - and has to pay less tax if it repatriates money to the US.

[blueprint]

And we wonder why the UK economy is Donald Ducked?

"For example, they've paid an entire £8m in UK corporation tax on revenues of some £6bn from 2004 to 2010."

Answer right there. The little people pay the taxes, the big people don't have to.

[Headley_Grange]

Revenue is not profit

Corporation tax is paid on profit, not revenue.

[James Micallef]

Sure, you're right

but even then, do you think that the big G made anything less than multiple billions profit on that 6bn revenue? 8mln tax on that is still less than 1% effective tax rate

[BristolBachelor]

Revenue is not profit - Exactly

So all Google UK has to do is pay Google Ireland £5.9bn for "services" and it's profit is much less. It can then pay corporation tax on that profit.

And that's how they do it, "Jus' like that"

Now here's the other thing. I think that the £6bn counts towards the UK GDP, but the £5.9bn also counts towards Irelands GDP, even though it's really the same money. You could create a system (call it infinate loop) where you just pay money between companies for "services" and get any GDP you want, no?

[Anonymous Coward]

err

Isn't that called pulling an Enron and the entire reason why Sarbanes-Oxley exists (and you can bet your arse that Google UK is subject to it seeing it is a subsidiary of Google US, surely?)

[cloudgazer]

The money isn't double-counted

GDP calculations don't work that way, intermediates are subtracted out.

[Anonymous Coward]

So?

Assuming that Google does pay its Irish company for "services" just to avoid UK tax - what's wrong with that? Serves the UK right for having high tax rates.

[Anonymous Coward]

Crucial point

They Do no Evil.

ref. para 6.

http://www.google.com/about/corporate/company/tenthings.html

[Tom 15]

Well...

Every time the big people pay taxes, the little man earns less in his wages.

[David Dawson]

Really?

I thought it was way more complicated than this ditty little phrase suggests.

Oh well, silly me!

[tamar1n47]

title

i though they'd just put the price of their products up to cover the corporation tax. which would mean we pay the bill. just like we pay own income tax, national insurance, value added tax, council tax, road tax, fuel duty... did i miss any out? what about inflation? i did a few calculations a while back which showed that i get to keep 30% of my salary to spend on things. haha. don't you just love being extorted?

[Arctic fox]

RE: Every time the big people pay taxes, the little man earns less in his wages

No, the system does not work that way. The "big people" pay both the tax man *and* their own employees as little as possible under any and all circumstances. Large numbers of people are so badly paid by these heroes of Capitalism that they need help from the Social even though they are in "gainful" employment. Who pays for this? You and me, ordinary taxpayers because it certainly is *not* "Mr Big". He ensures that he contributes as little to society in the form of tax as he can and in many cases by paying his employees as badly as he can. A significant section of our financial and business elite (not all, but many) are the very definition of the word "parasite".

[frank 3]

so that's why...

Every time the big man pays tax, its levels the playing field between him and homegrown entrepreneurs.

I run a UK company and employ skilled UK software engineers, but can't offshore my profits like this because I'm not big enough. My corporation tax payments subsidise my multinational competitors. They pay virtually no tax but benefit from UK services and infrastructure. This destroys UK companies by giving foreign competitors an advantage.

Per pound of profit, I pay 100x as much tax as Google UK operations.

UK tax laws actively discriminate in favour of big, successful US companies at the expense of UK companies.

This is not special pleading, I just want a level playing field.

[Anonymous Coward]

Don't forget HP's $1 billion "charge" on its purchase of Palm

"Charge" being beancounter speak for tax loss.

HP may have lost x hundred million on their TouchPad, but they've created the excuse for ax loss of a billion.

[fandom]

loss of a billion

Somehow, I am pretty certain HP would have preferred to get Apple like profits on those TouchPads.

[James Hughes 1]

Google does something legal shock

Blimey, who would have thought it.

[James Micallef]

If I remember correctly

US companies have a legal obligation to their shareholders to extract the maximum possible profit, and company executives can be sued by shareholders if they do things like pay more tax than they're legally required to.

If google have " paid an entire £8m in UK corporation tax on revenues of some £6bn from 2004 to 2010", the fault lies entirely with HMRC and UK tax law, NOT with google. I have long said that the best way to increase both the total tax take AND to increase the proportion of tax paid by wealthier people / corporations is to LOWER the tax rates while at the same time closing ALL loopholes and exceptions.

Even if poor / middle-class people lose out on exemptions such as children's allowance and tax rebates on mortgages etc, it will be more than made up for by having a flat rate of say 15-20% on ALL earnings whether they are job salary, business income, capital gains, whatever. On the other hand wealthy people and corporations hire the best tax lawyers who will utilise all available loopholes, and lobbyists to create more and more loopholes, and we end up with this situation where Google's effective tax rate is 0.13%.

As an added bonus, it would be a HUGE reduction in tax bureaucracy (and tax office headcount), and for double added bonus, it would also hugely reduce tax lawyer headcount.

[Velv]

Ah, the simple life

"the fault lies entirely ... UK tax law"

Err, no. The fault lies in Global Tax law - you can choose to register in (almost) any country you like and pay your taxes there. Google is registered in Ireland, not the UK, hence even if it made £6Bn profit it would still probably only pay ~£8m in UK tax.

So we need to extend your proposal. All countries in the world need to have the same tax rates otherwise those that can afford to will continue to be "resident" in a lower taxing country.

Somehow I don't see that happening any day soon.

[James Micallef]

@Velv

Of course you're right and I was being over-simplistic (hey if solving the world's tax woes was as simple as a 200-word post there woudn't be such a mess). Certainly as you say there needs to be a concerted worldwide effort to have at least similar regimes to the one I described.

On the other hand I do not think it is that far-fetched, for example international banking rules to combat money-laundering and private citizens' tax evasion are stuck to all around the world, and even countries like Switzerland where banking secrecy used to be paramount are regularly giving up info to the US, Germany, France etc. In times were major governments are hugely in the red all over the world it's not too far-fetched to think that something similar could happen.

I also think that it's more difficult with companies such as Google who could just dump all their servers in the Cayman Islands or wherever, but the majority of companies need physical presence in developed economies. Got to start somewhere

[Figgus]

Or maybe

Ole Blighty just needs to adopt a competitive tax rate and then all the corps would declare taxes there? NAH, that would be too simple.

[Anonymous Coward]

IP fees are the problem

It's actually reasonably easy to fix. Just that no-one has the guts. You simply put a big trade tariff on IP licensing fees (copyright, trademarks and patent fees) and close down the money pipeline. To explain, at the moment licence fees are used to add costs in one country and suck money into another, more tax friendly, place - you simply locate ownership of the IP in the low tax country and make a licence fee 'charge' to the high tax country. Unlike tangible goods where there are stronger transfer pricing rules, there's nothing to say what a 'fair' IP licence fee should be so you can suck money from one country and pump it somewhere else at will.

An IP tariff would make it that all IP 'sold' (which is what the 'charge' really is) into, say the UK, attracts a 75% tariff fee. In this case the IP money-vacuum pump would then get hit by a 75% tax, versus standard corp tax at 21-25%. The business wouldn't have the option of using IP fees to shift profits and so would be forced to fess-up and pay proper corp-tax.

[Gary Bickford]

that won't work

Having all countries charge the same tax is essentially the same as requiring all office buildings to charge the same rent per square foot. Needless to say, this makes no sense. Every office building manager makes a decision based on the market, the characteristics of the building (condition, location, amenities, etc.), and tries to get tenants in. If they charge too little, they will lost money, and if they charge too much they will lose tenants and eventually lose money. Of course, if the building is fully rented, then there will be more work for those who maintain the building and services within.

Similarly, nations can charge whatever the market will bear. If they charge too much or impose too many costly regulatory burdens, businesses will relocate away, revenues will drop and unemployment will rise. If they charge too little (or don't provide a sufficient regulatory regime), the cost of the various government services will not be covered by the 'rent' (taxes) and by the income derived from the service businesses and workers that were depending on the business that moved. (In the simplest most extreme case, the fumes from the business kills all the workers, and the business fails.) Of course governments are slow to respond to the market, and full of idealists of varying stripes who think that they have the true word and resist responding to the market if it disagrees with their theories.

[Andrew 87]

In addition

public bodies should be restricted from doing business with companies that avoid paying their fair share of tax. BTW the company that HMRC sold 60% of their property to and leases it back from is based in a tax haven.

[Anonymous Coward]

Re: If I remember correctly

"US companies have a legal obligation to their shareholders to extract the maximum possible profit,"

[Citation needed]

"and company executives can be sued by shareholders if they do things like pay more tax than they're legally required to."

This kind of entitlement culture ("the company should have made me ten times richer but didn't, so I'm suing them!") is precisely why the "advanced" economies are slipping into the toilet bowl. Don't like the strategy, can't replace the board? Invest in some other damn company, just like us little people have to when our shares and/or dividends take a dive while the chairman gets his multimillion dollar bonus, and quit whining!

[BigFire]

Fiduciary Responsibility

It's call Fiduciary Responsibility. Here's the Moody page http://www.efmoody.com/arbitration/fiduciary.html on its definition. ALL officers of public corporation are expected to follow it.

[Anonymous Coward]

Fiduciary Duty /= Entitlement Culture

I think the OP overstated things quite a bit with the comment:

"US companies have a legal obligation to their shareholders to extract the maximum possible profit, and company executives can be sued by shareholders if they do things like pay more tax than they're legally required to."

...but for better or worse, being sued for Breach of Fiduciary Duty is a risk for corporate officers. However, the law in question is more typically used to sue people who have used their position in clear and direct violation of the interests of the trustee (owner/shareholders) they are supposed to be serving.

From what little I know on it, the impression I had was that the US has a very strict interpretation of Fiduciary Duty... so I don't really see a lawsuit for "[not maximizing profits by doing shady and possibly unethical things]" being successful.

While at the same time, people here seem to sue for anything, so I wouldn't really say that I would be surprised if some shareholder entered into a (frivolous IMHO) lawsuit - to your point :)

[Anonymous Coward]

It happens all the time

Just today shareholders won $16M in their suit against J Crew, who sold itself to a couple of private firms not only for "not enough" money, but in a way that enriched the CEO at the expense of the shareholders. J Crew did not maximize profits for the shareholders by doing something possibly unethical but not necessarily illegal. There are similar lawsuits pending against Warner Music, Goldman Sachs, MGM, and Johnson & Johnson. And yes, they may be frivolous--but companies targeted by shareholder lawsuits almost always settle.

[Steve Gooberman-Hill]

Simplify the tax system!

A simpler tax system with less scope for creative accountancy would also reduce the need for tax lawyers. Imagine what could be done if these highly educated minds were directed to something a little more useful to society....

[Tim Worstal]

Update

Since I originally wrote this up (yesterday) I've been told that there's also a few billion in cash on the Motorola balance sheet.

Long term net cost is approaching zero.....

[David 164]

This is a brilliant piece of business for Google

It around 400 million dollars cost to the deal i. Per patent that way cheaper than the Nortel patents went for.

Plus if Google sales the bits of Motorola Mobility that it does not want, such as its set box business Google is looking making substantial profits from the deal, up to 4 billion dollars have been talked about what Google could get for bits of Motorola Mobility that Google is not interested. Even when you take in lawyers fees, tax costs this look like a brilliant piece of business by Google. An the risk of this deal not going through is low to negligible because there is so much of Motorola Mobility that Google can sale of or separate into separate companies to satisfy the regulators.

Even the credit rating agencies were quick to reverse there decision on this move an Google credit rating. I suspect Wall Street will catch up sooner or later, and Google shares will benefit.

[Anonymous Coward]

Thanks Tim.

I couldn't shake the nagging feeling the patents weren't all there were to it, so looked at the engineering stuff instead (and got downvoted for complaining I didn't get it). Maybe should've thought they'd be more likely up to creative accounting again. That's something they do quite a lot more than gets publicised. Then again, I am a techie and not a beancounter. Thanks for coming up with a logical reason why they were up to this.

One thing though: Why would moto want to get rid of this loss-making company instead of "suffering" the tasty tax deductions themselves?

[Raz]

Remove titles already!

@AC 15:02 To not pay taxes you have to have taxes to pay, which means you have to make money. That's why Google bought the loss, and the loss has no value for Motorola, cause Moto did not make enough money for the loss to cover in taxes.

[Danny 5]

look at the Dutch

their tax regime for companies is lenient to say the least (i believe we've been dubbed a tax haven), but our tax regime for the common folk is one of the highest in the world, top rate going at 52% tax :s

it's no wonder companies want to have their main office here, it's also no wonder Bono has his account over here, in stead of in Ireland.

[Mondo the Magnificent]

Uhm, okay...

This article was quite taxing to read and I am at a loss to what it all means

However I do feel I profited by reading it anyway..

[Anonymous Coward]

taking it seriously?

the Nortel bids were mystifying at the time

(Reuters) - At the auction for Nortel Networks' wireless patents this week, Google's bids were mystifying, such as $1,902,160,540 and $2,614,972,128.

...soon solved by the hive mind however...

Google put forth bids of $1,902,160,540, $2,614,972,128 — and $3.14159 billion. If those numbers look familiar, it’s because you’re a nerd. Brun’s constant, Meissel-Mertens constant, and yes, Pi.

I'm surprised they did not use some "schoolboy" numbers like 0.7734 Billion, or better, 3.79009, like they're at the back of the class, pissing about.

[An ominous cow herd]

Thumbs up for the 3.79009 bi value

They may have not risked that value for being too close to a winning bid, perhaps?

[Justin Clements]

Nice thinking

This is about the most sensible reason I can see them doing purchasing Moto Mobile. But then, it does rather leave them with the small issue of a loss making handset company, 20,000 employees (and redundancies if you close the company), and winding up your Android partners like crazy.

Also, reducing tax bill by buying a loss making company doesn't make sense. If you want to make a loss, get all your employees a company BMW 7 series. Far easier and the company parking lot will look a lot tidier.

[Gary Bickford]

Losses are already on the books

The Moto losses have already occurred, and are on the books. Moto couldn't take advantage of the carry forward, as they didn't have profits to offset. So for Google it's more like a discount on the price. Moto may still continue to lose money, but I suspect Google will either sell off or turn around those bits ASAP.

What I'd like to see is Google using the Moto tech as a kind of semi-open strategy to benefit their Android customers, improving technology, improving interoperability and reducing costs for their entire customer base. That could take Android to a new level, and might end concerns on the part of their customer base about Google competing with their customers.

[Pete 2]

If these guys ever wrote a compression algorithm

... you'd have to pump a few MB into it to get back to a zero length file. Thank dog the laws of physics don't work like that,

Hang on, quantum mechanics ... entanglement ,,. tunneling ..... hmmm. Maybe that's where they got the idea.

[Andrew 87]

The other thing it gives them

is an additional legal way to move profits from high tax countrys to low tax countrys by collecting IP royaties from it's subsiduaries.

[cloudgazer]

Actually Nortel did have tax losses supposedly

But as they were Canadian tax losses they weren't useful to Google. They ended up going to RIM, which is why its share of the consortium was larger than might otherwise have been expected.

[Anonymous Coward]

The real reason they took the chance?

While the tax breaks might have given them the hedge they needed, it's stil not the reason they did it. The title should probably be more like: " The real reason Google took the chance on buying Moto to advance/protect Android". They figured if it turned out to be a bust on the Android gamble, they knew the money wasn't totally wasted.

[Morteus]

Nostalgic

It doesn't seem that long ago that they were just a little ol' search engine.

My, how they've grown!

[45RPM]

Xander, don't speak Latin in front of the geeks…

Non esse malum

[Another One]

Hammer

meet the nail's head.

And don't forget a few "telecoms" companies 13 years ago deliberately running at a loss or even set up to fail for the same reasons.

Bitter? Me - noooooooo.

[Disco-Legend-Zeke]

So, An Expert At...

*

...losing money adds hidden value to one's Intellectual property.

By that measure, I'm a gazillionaire.

*Beer: over the counter medicine for poverty.

[zanto]

geez....

and there i was thinking that the only reason google bought motorola was to give us milestone owners our regular fixes of android updates...

[Anonymous Coward]

Wrong.

"If Google has to reach in to their foreign stash of cash, they have to pay taxes on that cash first then do the purchase."

Wrong - they will probably get Google Cayman or Google Ireland etc. to 'buy' Motorola.

Anyhow they probably do have that sort of cash in the US as they do have to pay taxes in the US on their US operations or they would just 'borrow' it (the interest is also allowable against tax).

[Magnus_Pym]

Eh!

"Wrong - they will probably get Google Cayman or Google Ireland etc. to 'buy' Motorola."

In order for Google Cayman to to buy Motorola they have to move the money from the Cayman Bank to a US bank. In doing so they would pay US tax. Better to leave the money where it is and either have Google US make a loss to offset against future profits or make Google US borrow the money from Google Cayman and pay them interest in Cayman. Either way Google spends money in the US and makes profit elsewhere.

What are they going to do with the cash that they cannot bring home. Buy a country of their own? If so Iceland would be a good for them; depressed economy, small population, geothermal energy, natural cooling for servers.

[Anonymous Coward]

Smart.

"it's no wonder companies want to have their main office here, it's also no wonder Bono has his account over here, in stead of in Ireland."

It's a smart move for the Dutch - they offer low tax rates, attract big business and earn a bit of tax whereas previously they would have earned none. Probably not too many jobs created - it's probably an office with 2 people in it or maybe just a virtual office at their lawyers / accountants.

[Anonymous Coward]

This is impossible.

We can't have science/engineering qualified people doing finance and doing it well, it's against nature.

(For those not working in the UK - you'd have to be there to understand).