From fiscal years 2007 to 2009, Google paid between 22% and 28% of its GAAP profits in income taxes. From their audited financial statements:
Our effective tax rates have differed from the statutory rate primarily due to the tax impact of foreign operations, state taxes, certain benefits realized related to stock option activities, and research and experimentation tax credits. The effective tax rates were 25.9%, 27.8%, and 22.2% for 2007, 2008, and 2009
Despite that, blogs have been breathlessly reporting that Google has a 2.4% effective rate. Typical is this is ThinkProgress post:
Google managed to lower its effective corporate tax rate all the way down to 2.4 percent, far below the U.S. statutory rate of 35 percent.
"Truthiness" is, roughly speaking, a lie that tells the truth. Yes, Google's ability to manipulate its tax rate down to the low-to-mid-20s is problematic and does reflect poorly on the tax code, but the claim that it pays a 2.4% effective rate is simply false. So where did the claim come from?
It started innocently enough: back in May, Bloomberg reported on a corporate structure employed by Forest Laboratories to reduce its tax via transfer pricing. For our purposes, here's the key excerpt:
The change helped the Irish subsidiary cut its effective tax rate to 2.4 percent from 10.3 percent the year before the reorganization, according to its annual reports. It did so by deducting from its taxable income the fees that went to Bermuda, which has no corporate income tax
IOW, we subtract roughly 7.9% in fees paid to Bermuda from income taxable to Ireland and wind up with a marginal income tax rate of 2.4%. Importantly, that's the rate only for the income that is shifted to Ireland via transfer pricing. What's the actual rate paid on US income? We just don't know. We do know that the IRS blessed Google's transfer pricing scheme, so that permits a weak inference that the IRS is getting some reasonable cut; we also know that Google pays 22% - 28% in tax, so, at a minimum, we can safely assume it's well above 2.4%.
The 2.4% calc of the marginal rate on Irish income subsequently made it into the recent piece on Google's tax:
Google’s income shifting -- involving strategies known to lawyers as the "Double Irish" and the "Dutch Sandwich" -- helped reduce its overseas tax rate to 2.4 percent,
If one isn't a careful reader, the qualifier "overseas income" may be missed. Heck, if one is just a hack, one won't even read the article but just the headline:
Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes
If one just reads the headline, it's easy to see how that can be interpreted that Google is paying an overall rate of 2.4%. And that seems to be what happened here: through a failure to read carefully and check primary documentation, a qualified statement about the tax rate on a particular subsidiary was imputed to the entire company.