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Obama clarifies position on tax loopholes

20th August 2014

MGI World Obama clarifies position on tax loopholes

US president Barack Obama has clarified his position on tax loopholes, such as those used by search engine giant Google. 

In recent years, Google’s effective tax rate in the US has dropped significantly from 21 per cent to 15.7 per cent, as it increasingly takes advantage of overseas tax benefits. 

It was reported that in 2013, Google Ireland Limited paid an effective tax rate of just 0.16 per cent on its €17 billion (£13.5 billion) revenue. This totalled just €22 million. Meanwhile, Google paid €11.7 billion in “administrative expenses”, which according to The Irish Times, mainly refers to royalties paid to other Google entities, some of which are controlled from tax havens. 

In 2013, the company stated in its annual report: "Our provision for income taxes and our effective tax rate decreased from 2012 to 2013, primarily as a result of proportionately more earnings realised in countries that have lower statutory tax rates as well as the federal research and development credit related to the American Taxpayer Relief Act of 2012."

Commenting on such tax practices, Obama said that while this tactic is legal, using it is not necessarily the mark of a good corporate citizen.

He said: "People are paid to maximise profits. But people are also paid to be good corporate citizens. They're also paid to make sure that they're thinking about [that] in addition to shareholder value. 

“How do you grow a company over the long term? And this kind of strategy, I think, undermines people's confidence in how companies are thinking about their responsibilities to the country as a whole."

Speaking to CNBC the president said that big US-based corporations that acquire small companies in other nations should not want to take advantage of low tax rates abroad, especially if they have many more employees in the US than they do in the country in question. 

He added: “You are an American company. You continue to benefit in all kinds of ways from being an American company."

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