Google Inc. v. Rockstar Consortium US LP et al

Filing 78

REPLY (re 67 MOTION to Transfer Case or, in the Alternative to Stay ) filed byMobileStar Technologies LLC, Rockstar Consortium US LP. (Attachments: # 1 Declaration (Supplemental) of Joshua Budwin, # 2 Exhibit 36, # 3 Exhibit 37, # 4 Exhibit 38, # 5 Exhibit 39, # 6 Exhibit 40, # 7 Exhibit 41, # 8 Exhibit 42, # 9 Exhibit 43, # 10 Declaration (Supplemental) of Donald Powers, # 11 Declaration (Supplemental) of John Veschi)(Budwin, Joshua) (Filed on 5/30/2014)

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EXHIBIT 39 The Tax Haven That's Saving Google Billions - Businessweek Bloomberg TV Premium Register Sign In Search Magazine Global Economics Companies & Industries Like Politics & Policy Technology Markets & Finance Innovation & Design Lifestyle Business Schools 540k Follow @BW Small Business Video & Multimedia Technology The Tax Haven That's Saving Google Billions By Jesse Drucker Most Popular Read Discussed October 21, 2010 Feed Shared Look Ma, No Hands: Sergey Brin’s GoogleCar Has No Steering Wheel, No Brakes Boeing's Freer Bird: 787 Gets a License for Longer Flights The heart of Google's (GOOG) international operations is a silvery glass office building in central Dublin, a block from the city's Grand Canal. In 2009 the office, which houses roughly 2,000 Google employees, was credited with 88 percent of the search juggernaut's $12.5 billion in sales outside the U.S. Most of the profits, however, went to the tax haven of Bermuda. To reduce its overseas tax bill, Google uses a complicated legal structure that has saved it $3.1 billion since 2007 and boosted last year's overall earnings by 26 percent. While many multinationals use similar structures, Google has managed to lower its overseas tax rate more than its peers in the technology sector. Its rate since 2007 has been 2.4 percent. According to company disclosures, Apple (AAPL), Oracle (ORCL), Microsoft (MSFT), and IBM (IBM)—which together with Google make up the top five technology companies by market capitalization—reported tax rates between 4.5 percent and 25.8 percent on their overseas earnings from 2007 to 2009. "It's remarkable that Google's effective rate is that low," says Martin A. Sullivan, a tax economist who formerly worked for the U.S. Treasury Dept. "This company operates throughout the world mostly in high-tax countries where the average corporate rate is well over 20 percent." The corporate tax rate in the U.K., Google's second-largest market after the U.S., is 28 percent. In Bermuda there's no corporate income tax at all. Google's profits travel to the island's white sands via a convoluted route known to tax lawyers as the "Double Irish" and the "Dutch Sandwich." In Google's case, it generally works like this:[5/29/2014 9:54:32 AM] The Ex-Banker Behind the $3 Billion Apple-Beats Deal Jimmy Page Says Stairway to Heaven Ripoff Claim Is 'Ridiculous' S&P Throws Tesla's Surging Shares on the Junk Heap Newsletter Signup Sample copy I'm in Why Michigan Twitter News Click to see latest tweets   alk to a business development specialist T The Tax Haven That's Saving Google Billions - Businessweek When a company in Europe, the Middle East, or Africa purchases a search ad through Google, it sends the money to Google Ireland. The Irish government taxes corporate profits at 12.5 percent, but Google mostly escapes that tax because its earnings don't stay in the Dublin office, which reported a pretax profit of less than 1 percent of revenues in 2008. Learn why it's a new day in Michigan STORY: The Trouble With IBM Irish law makes it difficult for Google to send the money directly to Bermuda without incurring a large tax hit, so the payment makes a brief detour through the Netherlands, since Ireland doesn't tax certain payments to companies in other European Union states. Once the money is in the Netherlands, Google can take advantage of generous Dutch tax laws. Its subsidiary there, Google Netherlands Holdings, is just a shell (it has no employees) and passes on about 99.8 percent of what it collects to Bermuda. (The subsidiary managed in Bermuda is technically an Irish company, hence the "Double Irish" nickname.) Doubling Down on a Muddled Foreign Policy Transfer Pricing All of these arrangements are legal. "Google's practices are very similar to those at countless other global companies operating across a wide range of industries," says Jane Penner, a company spokeswoman who declined to address the particulars of Google's tax strategies. Irving H. Plotkin, a senior managing director at PricewaterhouseCoopers' national tax practice in Boston, says that "a company's obligation to its shareholders is to try to minimize its taxes and all costs, but to do so legally." The setup lowers Google's overseas tax bill, but it also affects U.S. tax revenues as the government struggles to close a projected $1.4 trillion budget gap. Google Ireland licenses its search and advertising technology from Google headquarters in Mountain View, Calif. The licensing agreement allows Google to attribute its overseas profits to its Irish operations instead of the U.S., where most of the technology was developed. The subsidiary is supposed to pay an "arm's length" price for the rights, or the same amount an unrelated company would. Yet because licensing fees from the Irish subsidiary generate income that is taxed at 35 percent, one of the highest corporate rates in the world, Google has an incentive to set the licensing price as low as possible. The effect is to shift some of its profits overseas in an arrangement known as "transfer pricing." STORY: As Apple Borrows to Avoid the IRS, EBay Chooses to Pay $3 Billion Tax Bill This, too, is legal. In 2006 the IRS approved Google's transfer pricing arrangements, which began in 2003, according to Google's SEC disclosures. Transfer pricing arrangements are popular with technology and pharmaceutical companies in particular because they rely on intellectual property, which is easily transportable across borders. Facebook is preparing a structure similar to Google's that will send earnings from Ireland to the Cayman Islands, according to company[5/29/2014 9:54:32 AM] Is Google’s Driverless Car a Pipe Dream or Reality? Beats Has to Claim Key Music Role at Apple: Klein China's Kids Get Exposed to Cigarette Smoke at Middle School, National Survey Finds Botox Alone Didn't Fetch a $50 Billion Bid for Allergan Neel Kashkari Wants to Be a New Kind of Republican Taco Bell's Secret Recipe for New Products Tech Stocks Undo the Damage Cheerios and Milk Join the Protein Popularity Contest Piketty's Capital: An Economist's Inequality Ideas Are All the Rage The Tax Haven That's Saving Google Billions - Businessweek filings and a person familiar with the arrangement. Microsoft and Forest Laboratories (FRX), maker of the blockbuster antidepressant Lexapro, have used a similar Irish-Bermuda transfer pricing arrangement. Facebook, Forest, and Microsoft declined to comment. STORY: Hedge Funds Get Fat on Lehman's Remains previous 1 next 2 Drucker is a reporter for Bloomberg News. Ads by Google Invest in FTTN A New Era Is Emerging In The Energy Market & FTTN is ahead of the curve From The Web Sponsored Content by Taboola by Taboola Logitech® ConferenceCam Professional Audio & Video With The Logitech® ConferenceCam CC3000e. 8% Annuity Return Secret Dont Buy An Annuity Til You See Our Secret to 8% Guaranteed* For Life Warren Buffett Tells You How to Turn $40 Into $10 Million ‘Warren Buffett $975M of Savings for Indicator’ Signals California’s Largest Collapse in Stock M… Toll-Road System 30 Candid Met Gala Snaps You Haven't Seen (But Need To!) 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China Gas Deal Shows Putin Has No Leverage: Humes LIMITED-TIME OFFER SUBSCRIBE NOW[5/29/2014 9:54:32 AM] Visit Bloomberg The Tax Haven That's Saving Google Billions - Businessweek 0 Comments d Sort by Best Share ⤤ Login Favorite ★ Start the discussion… Be the first to comment. Social Links Follow us on Twitter Our Company Mobile News Mission Newsletters Connect with us on LinkedIn Advertising Privacy Policy Connect with us on Google+ Careers Reprints & Permissions Subscribe to Bloomberg Businessweek Content Licensing Sitemap Feedback Terms of Use Custom Publishing Get Businessweek Delivered [+] Rate This Page Join us on Facebook IBM: Cannot Compute SUBSCRIBE Manage Subscription ©2014 BLOOMBERG L.P. ALL RIGHTS RESERVED. MADE IN NYC[5/29/2014 9:54:32 AM] Ad Choices

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