BusinessWeek calculated that Google has saved $3.1 billion in taxes over the last three years thanks to a complicated tax-reduction scheme for the income it generates outside the US. Thanks to this technique, the tax rate Google pays on income generated outside the US is just 2.4 percent, significantly lower than the 35 percent corporate tax rate in the US.
In short: Google licenses its intellectual property to Google Ireland Holdings. Google Ireland Holdings owns a separate company called Google Ireland Limited. Google Ireland Limited sells advertising in Europe, the Middle East, and Africa, and pays Google Ireland Holdings royalties for the right to sell such advertising. Google Ireland Holdings is set up with something called an "effective center of management" in Bermuda, and collects royalty payments from Google Ireland Limited after they are detoured through the Netherlands (amusingly known as the "Dutch Sandwich") to satisfy Irish tax laws.
The end result is that Google saved $3.1 billion in taxes over the last three years, according to the report. The method is popular both inside and outside the tech industry, as well: experts quoted by Bloomberg Businessweek estimate that the U.S. government loses $60 billion a year in taxes from companies that use this technique.