Google (GOOG) Goes To The Bond Market While It Awaits Its Big Tax Break

avatar By: IS
Date posted: 06.07.2011 (5:00 am) | Write a Comment  (0 Comments)

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We’ve discussed the big tax loopholes that companies like Google are exploiting in the past. It’s a complicated structure that helps companies such as Google, Facebook, and General Electric pay almost no taxes on their earnings by making sure those earnings belong to foreign divisions of the companies. It’s a complex, legal, and almost unstoppable scheme that has almost no flaws. One such flaw however is that these companies accumulate huge cash reserves abroad which are very difficult to bring back home without paying huge amounts in back taxes. What is a company like Google to do?

The first step is pressing for another one of those “One Time Tax Breaks” that facilitate US companies bringing back money home. That is in process and while it could take some time to actually happen, I don’t think anyone believes it won’t. There is just so much at stake and not permitting these earnings to come back home would mean lost jobs (even if the extent of that has been questioned) and giving incentives for companies to move more operations abroad.

However, such tax breaks require lobbying and government interventions, which take a lot of time. What is a company like Google to do in the meantime? This time, they decided to actually issue bonds worth $3 billion. It might look odd considering the company has $35B in cash equivalents on its balance sheet but if that money is abroad and cannot easily be used for acquisitions in the US, it can be a bit of a problem. For that reason, Google went to the bond markets.

Cheap financing

Of course, it does not hurt that Google is paying almost nothing in interest. Google is ending up paying 1.25% on 3 year notes, 2.125% on 5 years, and 3.625% on 10 years. How low is that? Think about the fact that Google is only paying 0.58% per year more than the US government. That, my friends means it is cheap as Google could have hoped for really.

 

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