Bloomberg dug into Google's annual SEC 10-k filing to discover that the company plans to litigate an issue from the 2003 and/or 2004 tax years. No suit has yet been filed, and there is no information regarding the substance of the dispute or the amount at stake. See Googloe Plans Litigation Against U.S. Tax Authorities over Audit, Bloomberg.com (Feb. 6, 2013).
Google has been in the news lately because of its ability to offshore profits to low-tax countries like Bermuda using treaty countries like Ireland and the Netherlands. Because most of Google's assets are intangibles, it is relatively costless to claim "sales" through intracompany transactions that offshore the intangible and then attribute the profits to other countries. Valuation of such sales of intangibles is inherently manipulative--no company would actually sell such invaluable essential business property to a third party, and there are strong arguments that our laws should not permit companies to make such "paper-only" transfers of intangible properties to offshore affiliates that have the primary result of creating complex structures that achieve lower US taxes, like the "Double Irish" and "Dutch Sandwich".
As the report notes, Google's 10k reports an overall (state and federal) effective tax rate of only 19.4% in 2012, down from the 21.2 reported in 2010, even though the federal statutory rate on profits is 35%. In 2012, at least $9.8 billion in profits shifted to a Bermuda subsidiary. These tax-haven subsidiaries are often just token offices with some paper-pushing and no real business reason for existing. The difficulty for the government here is action taken by the Bush administration--"In 2006, the IRS signed off on a 2003 intracompany transaction that moved foreign rights to Google's search technology outside the U.S."