Blog Post

Grey Hat Accounting: How Google Avoids Paying Taxes In America


Business Week is reporting a very interesting story about Google, our most loved and / or feared search engine giant. In a nutshell, Google uses a very complicated set of subsidiaries and revenue flows to bring it's effective corporate tax rate down to 2.4%, according to Business Week. They do this mainly through their Irish, Dutch and Bermuda-based subsidiary companies. This is an amazingly low rate and is, once again, a testament to just how fantastic Google is at execution. Apparently, international tax law is another unknown core competency.

From everything I've read, it seems that nothing that Google is doing is illegal. All of their accounting is within the limits of the laws of the various countries they file in.

So why do I have a beef with what Google is doing related to taxes? I don't.

What I find more interesting is the evolution of Google's image. If you have been following my recent posts, I've been plotting a course of Google's main PR talking points. A month ago I recapped what Aaron and Rand have to say on the changing face of SEO. More recently, Google's own statements about reputation management caught my attention. Make no mistake, there has been a dramatic shift. They are moving away from "Do No Evil" toward being an exceptionally good corporate giant with an increasingly intense focus on profit and growth. And for anyone who has tuned into the search engine optimization space for the last 8 years, this is fascinating.

Rewind the tape a bit. Google spent a solid 5 years telling the search engine community that we should not be doing certain activities. While these activities were known to help promote business and search engine rankings, Google said they were off-limits. Their position was NOT based on legal grounds, but more on moral grounds. As far as I know, there is nothing illegal about buying a link. But Google would say things like "you are contributing to the downfall of quality on the Internet." And they were very convincing. People were scared to death of "breaking the rules." These rules, mind you, were not very clear at all. But we're seeing all that change. Google is no longer pushing the moral high-ground much these days. The famous Matt Cutt's team has been reassigned. And it is quite clear why. Their moralistic arguments don't hold up when you look at what they actually do themselves to make money.

If you held Google to their own moral standards (at least the ones they adopt for SEO), you would have to conclude that their very sophisticated methods of avoiding American Corporate Taxes (could we go so far as to say "manipulating taxes") is clearly grey-hat (gray-hat). However, as opposed to potentially hurting the quality of information on the Internet, what Google is doing is potentially lowering the quality of life for Americans. Think that one through for a moment.

But to be clear. I don't harbor any ill-will toward Google for what they are doing RE: their taxes. It's legal. But I harbor ill-will toward Google for the blatantly self-serving PR machine they ran for years that effectively fed the public misinformation about search engine optimization. Yes, I'm ranting now. And in the end, I don't really care because I never bought into their SEO PR back then. It is actually quite satisfying to see where things are today. Finally, data is coming out to help others see that Google is just like any other for-profit corporation. Their corporate motto of "do no evil" is just that - a motto. The more you see that many of Google's business practices are "grey-hat" (using their own definition), the more you have to conclude that the Emperor Has No Clothes.