Bloomberg News 
 
 Oct. 13 (Bloomberg) -- The U.S. Internal Revenue Service is auditing how Google Inc. avoided federal income taxes by shifting profit into offshore subsidiaries, according to a person with knowledge of the matter. 
 
 The agency is bringing more than typical scrutiny to how the company valued software rights and other intellectual property it licensed abroad, said the person, who requested anonymity because the audit isn’t public. The IRS has requested information from Google about its offshore deals after three acquisitions, including its $1.65 billion purchase of YouTube, the person said. The transfer overseas of these kinds of rights rights has enabled Google to attribute earnings to foreign units that pay lower taxes, Bloomberg News reported a year ago. 
 
 While Google’s potential liability isn’t clear, similar deals between companies and offshore arms are often the subject of disputes over hundreds of millions of dollars in taxes, said Daniel Frisch, an economist at Horst Frisch Inc. which advises businesses on transfer pricing -- the allocation of income between units in different countries. In 2006, the IRS settled a case with drugmaker GlaxoSmithKline Plc for $3.4 billion. 
 
 “The very biggest transfer-pricing tax disputes are over transfers of intangibles to offshore subsidiaries,” said Frisch, whose firm is based in Washington. 
 
 Google, owner of the world’s most popular search engine, has cut its worldwide tax bill by about $1 billion a year using a pair of strategies called the “Double Irish” and “Dutch Sandwich,” which move profits through units in Ireland, the Netherlands and Bermuda. Google reported an effective tax rate of 18.8 percent in the second quarter, less than half the average combined U.S. and state statutory rate of 39.2 percent. 
 
 Tax Holiday 
 
 “This is a routine inquiry,” said Jim Prosser, a spokesman for Mountain View, California-based Google. He declined to comment further. 
 
 Dean Patterson, a spokesman for the IRS in Washington, said federal law prohibits the agency from discussing specific taxpayers. 
 
 U.S. companies are sitting on at least $1.375 trillion in earnings in their foreign subsidiaries on which they have paid no federal income taxes, according to a May report by JPMorgan Chase & Co. Companies including Google, Cisco Systems Inc., Pfizer Inc., Apple Inc. and Microsoft Corp. are lobbying Congress for a tax holiday on bringing home those profits, which would otherwise be subject to U.S. income tax at the 35 percent corporate rate with a credit for foreign taxes already paid. 
 
 The Obama administration is opposed to that tax break and has been stepping up criticism of tax preferences for various industries and millionaires. Last week, Senate Democrats proposed a new surtax on people earning at least $1 million a year, a move that would generate an estimated $453 billion over the coming decade. 
 
 France Probe 
 
 The French tax authority also began reviewing Google’s income shifting in December, examining transactions between the company’s French and Irish subsidiaries, according to two people with knowledge of the probe. The French inquiry was prompted by the October 2010 Bloomberg article on the company’s tax-cutting strategy, the people said. 
 
 A spokesman for the French budget ministry, which oversees the tax authority, declined to comment, saying the agency cannot discuss individual cases. 
 
 Multinational companies cut their tax bills by shifting earnings into subsidiaries in offshore tax havens, a strategy that is drawing increased scrutiny from the IRS. 
 
 In May, the IRS appointed its first transfer-pricing director, Samuel Maruca. Last year, it announced the assignment of additional agents and attorneys to examine a few large companies as part of a pilot program. The IRS wouldn’t discuss whether Google is one of those companies. 
 
 Valuable Patents 
 
 Moving profit abroad is particularly important for cutting the tax bills of technology and pharmaceutical companies because of their valuable and easily transportable collection of patents and copyrights. Google, Cisco, Facebook Inc., Microsoft and Forest Laboratories Inc., maker of the blockbuster antidepressant Lexapro, have used tax-cutting strategies that move profits into units -- often with no employees or offices -- in havens such as Bermuda, the Cayman Islands and Switzerland, Bloomberg has reported. 
 
 In recent years, the IRS has engaged in a number of high profile disagreements with multinational companies over their transfer pricing. In 2006, the agency announced it was settling its dispute with GlaxoSmithKline. 
 
 In 2009, the IRS lost a closely watched U.S. Tax Court case with Veritas, now a part of computer-security software maker Symantec Corp. In that dispute, over intellectual property rights moved to an offshore subsidiary, the IRS sought $545 million. 
 
 Enforcement Setback 
 
 The win for Veritas was a major setback for the IRS’s ability to enforce transfer-pricing rules, according to H. David Rosenbloom, an attorney at Caplin & Drysdale in Washington, and director of the International Tax program at New York University School of Law. 
 
 Income shifting by multinational companies cost the U.S. $90 billion in federal tax revenue during 2008, according to a March article in the trade journal Tax Notes by Kimberly Clausing, an economics professor at Reed College in Portland, Oregon. 
 
 Google cuts its tax bill by about $1 billion a year using a technique that allocates profits to a unit managed out of a law firm in Bermuda, where there is no corporate income tax. In 2009, the most recent year for which records are available, this subsidiary collected 4.34 billion euros (about $6.1 billion) in royalties from a Google unit in the Netherlands, according to a Dutch corporate filing. 
 
 As of June 30, Google held $18.8 billion in cash in its foreign subsidiaries, almost half its total $39.1 billion in cash and marketable securities. 
 
 ‘Buy In’ 
 
 The IRS has already approved a major part of Google’s strategy. In 2006, the agency signed off on a 2003 intracompany transaction that moved foreign rights to its search technology to an Irish subsidiary managed in Bermuda called Google Ireland Holdings. That deal -- known as a “buy in” in tax parlance -- meant subsequent profit overseas based on those copyrights has been attributed to foreign subsidiaries rather than to Google in the U.S. where the technology was developed. 
 
 The IRS approval came in an accord known as an advance pricing agreement. Those arrangements are part of an agency program intended to forestall disputes with companies, including disagreements over the price paid by offshore units for patent and other intellectual property rights. 
 
 Google Acquisitions 
 
 That deal between the IRS and Google only covered rights the company held as of the 2003 licensing deal with its Irish unit. It didn’t cover copyrights subsequently acquired by the U.S. parent and then moved abroad. 
 
 Following that 2003 transaction, Google made several acquisitions, spending $1.65 billion for online-video site YouTube in 2006; $625 million for e-mail security service Postini in 2007; and $3.2 billion for web-advertising company DoubleClick Inc. in 2008. The IRS now is examining the prices paid by the foreign subsidiaries for the rights to software and other intangibles moved offshore that formerly belonged to those three companies. 
 
 According to U.S. Treasury Department rules, foreign units licensing rights from their U.S. parents are supposed to pay an “arm’s length” price, or the amount that would be paid by an unrelated company. If the offshore subsidiary pays too little, that has the effect of shifting income overseas, thus helping the parent avoid U.S. income taxes. 
 
 SEC Review 
 
 Google’s taxes have also drawn government scrutiny from the Securities and Exchange Commission. Last December, the SEC asked the company for “greater detail” about the profit it said it had earned in countries with lower tax rates and the impact on its effective tax rate, according to correspondence released by the agency in March. The SEC said in a February letter that it had completed its review of Google’s filings. It is unclear what action, if any, the agency took. 
 
 In August, Google announced it was spending $12.5 billion to acquire Motorola Mobility Holdings Inc., the Libertyville, Illinois telecom-equipment and mobile-phone maker. Google said it was doing the deal primarily for Motorola’s collection of valuable patents. Prosser didn’t respond to a question about whether Google would be moving any of those patent rights offshore. 
 
 --With assistance from Mark Deen in Paris. Editors: Jonathan Kaufman, Lisa Wolfson 
 
 To contact the reporter on this story: Jesse Drucker in New York at jdrucker4@bloomberg.net 
 
 To contact the editor responsible for this story: Jonathan Kaufman at jkaufman17@bloomberg.net ||||| October 13, 2011 at 2:58 pm by 
 
 Google engineer Steve Yegge may think some things are messed up at Google. But the search giant continues to deliver, with the company announcing today that net income for the third quarter blew by analysts estimates to $2.73 billion on net revenue of $7.51 billion. The stock is surging in after hours trading as a result, jumping more than six percent to $595. 
 
 CEO Larry Page said in a release that it was a “great quarter,” and stock analyst Colin Gillis told CNBC that “Christmas came early for Google shareholders.” 
 
 Page also touted the growth of Google +, the new social networking service that was the partial subject of Yegge’s widely-read rant. There are now more than 40 million people on Google+, with Page saying the numbers are growing rapidly. 
 
 The report comes amid big changes at Google, including its plan to gobble up Motorola Mobility. 
 
 But, despite the changes and big moves in mobile, Google is still very much a search advertising-based business. The company reported a 33 percent year-over-year revenue increase to $9.72 billion, largely on back of its advertising revenues. 
 
 At the end of September, Google — which employs about 1,000 people in the Seattle area — employed 31,353 wordlwide. That was up from 28,768 at the end of June. No wonder the company is expanding its real estate in the Seattle area. 
 
 Full earnings release can be found here. 
 
 And here’s a look at the slide deck that Google shared with investors today. 
 
 google_earnings_slides ||||| SAN FRANCISCO (MarketWatch) — Google Inc. shuffled its top leadership Thursday, at the same time posting a 29% rise in fourth-quarter profit that easily topped analysts’ estimates, thanks to strong demand for advertising on the company’s search engine and contributions from newer businesses. 
 
 The company said co-founder Larry Page will assume the role of chief executive officer starting in early April. Co-founder Sergey Brin will “devote his energy to strategic projects,” Google said, while current CEO Eric Schmidt becomes executive chairman. 
 
 Click to Play News Hub: Page to Replace Schmidt as Google CEO Google said late today that co-founder Larry Page will replace Eric Schmidt as chief executive. Julia Angwin talks to Lauren Goode about the surprise change atop the internet giant. 
 
 In that role, Schmidt will remain as an adviser to Page and Brin, Google said. “Day-to-day adult supervision no longer needed!,” Schmidt, who is 55 and roughly 20 years older than the co-founders, wrote on his Twitter account. 
 
 Mountain View, Calif.-based Google /quotes/zigman/30194416/delayed/quotes/nls/goog GOOG -1.62% reported fourth-quarter net income rose to $2.54 billion, or $7.81 a share, from $1.97 billion, or $6.13, in the year-earlier period. Revenue came in at $6.37 billion. Excluding one-time items, Google said earnings for the latest period were $8.75 a share. 
 
 Analysts polled by FactSet Research had expected Google to report earnings excluding items of $8.06 a share and $6.05 billion in net revenue. 
 
 “It was a phenomenal ending to a very good year,” Google Chief Financial Officer Patrick Pichette said during a conference call with analysts. 
 
 “This was a big quarter” for Google, said Caris & Co. analyst Sandeep Aggarwal, as the company’s results are “a reflection of a very strong core business, and the non-core businesses ramping up.” 
 
 Those “non-core businesses” include online display advertising, and mobile phone advertising. 
 
 Aggarwal said that Schmidt’s shift away from the CEO role is “not something we expected, but we’re not totally surprised.” 
 
 The analyst said Google had been “soft pedaling” the notion of Schmidt shifting roles, and that investors are likely to react positively to having Page running the company. 
 
 Shares of Google rose 2% to $639.50 in after-hours trading, following the earnings and management-change announcements. 
 
 ‘Larry is ready’ 
 
 “I could not be more excited about moving us forward,” Page said during the company’s conference call, adding that Brin and Schmidt “have really inspired and moved me, and I’m looking forward to many more decades of working together.” 
 
 The Google triumverate has stated publicly in the past that it anticipates sticking together to run the company until about 2024. 
 
 
 
 Reuters
– Hard times elsewhere haven't done any damage to Google's bottom line. The company has announced a whopping 26% year-on-year jump in profits for the third quarter of this year, with net income of $2.73 billion on nearly $10 billion revenue, most of it from advertising, the BBC reports. "The word that springs to mind is 'gangbusters,'" CEO Larry Page boasted, hailing Google+ as a success—although one senior engineer has a different opinion. Google now employs over 2,500 more people than it did three months ago, with a total head count of 31,353 worldwide, GeekWire notes. The news isn't all good for Google, however: The IRS is auditing how the company dodged federal taxes by shifting profits offshore, sources tell Bloomberg. Google is believed to have avoided some $1 billion in taxes worldwide by using a pair of strategies called the “Double Irish” and “Dutch Sandwich."