Google avoided about US$2 billion in worldwide income taxes last year by shifting US$9.8 billion in revenues into a Bermuda shell company, filings show.
By legally funneling profits from overseas subsidiaries into Bermuda, which doesn't have a corporate income tax, Google cut its overall tax rate almost in half.
The amount moved to Bermuda is equivalent to about 80 per cent of Google's total pretax profit last year.
The increase in Google's revenues routed to Bermuda, disclosed in a November 21 filing by a subsidiary in the Netherlands, could fuel the outrage spreading across Europe and in the US over corporate tax dodging. Governments in France, the United Kingdom, Italy and Australia are now probing Google's tax avoidance.
Last week, the European Union's executive body, the European Commission, advised member states to create blacklists of tax havens and adopt anti-abuse rules.
Tax evasion and avoidance, which cost the European Union €1 trillion (HK$9.9 trillion) a year, are "scandalous" and "an attack on the fundamental principle of fairness," Algirdas Semeta, the EC's commissioner for taxation, said in Brussels.
"The tax strategy of Google and other multinationals is a deep embarrassment to governments around Europe," said Richard Murphy, director of Tax Research in England.
"The political awareness now being created in the UK and, to a lesser degree, elsewhere in Europe, is: 'It's us or them.' People understand that if Google doesn't pay, somebody else has to pay or services get cut."
Google said it complies with all tax rules and its investment in various European countries helps their economies. In the UK, "we also employ over 2,000 people, help hundreds of thousands of businesses to grow online and invest millions supporting new tech businesses in East London," Google said.
The internet search giant has avoided billions of dollars in income taxes around the world, using two tax shelter strategies known as the Double Irish and Dutch Sandwich.
The tactics, legal in the US and elsewhere, move royalty payments from subsidiaries in Ireland and the Netherlands to a Bermuda unit headquartered in a local law firm.
Last year, Google reported a tax rate of 3.2 per cent on the profit earned overseas, even as most of its foreign sales were in European countries with corporate income tax rates ranging from 26 per cent to 34 per cent.
The UK, Google's second-biggest market, was responsible for about 11 per cent of its sales, or almost US$4.1 billion last year.