The United States Internal Revenue service is auditing how Google Inc. and other major companies are avoiding federal income taxes by shifting profits into offshore subsidiaries, a practice called “transfer pricing”. Focus is on how the company is valuing software rights and other intellectual property it licensed abroad and it has requested information from Google about its offshore deals after three acquisitions including it’s $1.65 billion purchase of YouTube. The transfer of rights may have enabled the company to attribute earnings to foreign units that pay lower tax rates in other nations. The IRS is increasing its focus on such tax issues, especially since its whistleblower program is now in full swing, allowing the whistleblower to obtain a percentage of moneys recovered by the government. Transfer pricing has special rules which are now always followed. The largest settlement of such a case was for $3.4 billion paid by GlaxoSmithKline in 2006. That settlement was for moneys owed for 1989 through 2005 because the company’s American unit improperly paid its British parent for drugs, mainly the anti-ulcer blockbuster Zantac. The IRS said that it overpaid its British parent and that reduced the company profits in the U.S.lowering its U.S. tax bill. Transfer pricing determines how costs are distributed between the distant arms of multinational companies. Higher costs cut into profit and lower the company tax bill. Whistleblowers with information on tax evasion may report the matters under the IRS whistleblower program anonymously through counsel and their names will not be revealed.
Jeffrey Newman represents whistleblowers. Jeffrey.Newman1@gmail.com