Google Ireland Holdings in turn licenses the technology to a Dutch-based shell company, which licenses it back to Google Ireland Ltd, which employs a staff of 2,000 in Ireland. Google Ireland Ltd collects all advertising revenue generated outside the U.S., pays part back in royalties to the Dutch subsidiary and then passes the bulk of the revenue to Google Ireland Holdings in Bermuda, where there is no corporation tax.
The passage through the Netherlands was needed because a direct transfer to Bermuda would incur Irish withholding tax, the Irish Times said. Google Ireland Ltd generated ¬12.5 billion in revenue last year, paying ¬8 million in Irish tax and a further ¬12 million in foreign withholding tax, the paper said.
"We respect the tax laws in all the countries where we operate and we are convinced we respect Italian law as well," Google said in a prepared statement. "We will continue to collaborate with the local authorities to answer their questions in relation to Google Italy and our services."