Nexus – When Are You “Doing Business” In A State Or A 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 Fifty 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.

Source:  Reuters

Ronald J. Cappuccio, J.D., LL.M. (Tax), business and tax attorney, has more than 30 years of tax and business law experience. As a lawyer since 1976, admitted to practice before NJ State and Federal Courts, including the US Tax Court and the Court of Federal Claims, I have helped clients from around the U.S. as well as multi-national clients. I have dedicated my life to agitating people – especially the IRS and government functionaries. I have never worked for the IRS and therefore I do not have to worry about them as former colleagues. Fighting the government so you can keep your money is just plain fun for me!

Subscribe to TaxConnections Blog

Enter your email address to subscribe to this blog and receive notifications of new posts by email.