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Google Plans Litigation Against U.S. Tax Authorities

Google Inc., which is being probed by several tax agencies around the world, is planning litigation against the U.S. Internal Revenue Service over the company’s 2003 or 2004 tax bill, according to a company filing.

The company disclosed the potential lawsuit in its annual 10-K report with the Securities and Exchange Commission filed Jan. 29. A search of federal court records didn’t show that any lawsuit has been filed.

In the SEC filing, Google said it had settled all of its outstanding 2003 and 2004 issues with the IRS during 2012 except for “one issue which we plan to litigate in court.” The filing provides no additional detail on the substance of the dispute or the amount of money involved.

Niki Fenwick, a spokeswoman for Google, and Dean Patterson, a spokesman for the IRS, didn’t respond immediately to e-mailed requests for comment. Federal privacy laws prohibit the IRS from discussing the cases of individual taxpayers and companies.

Google closed at $770.17 at 4 p.m. in New York, up $4.43 or 0.6 percent for the day.

Google, based in Mountain View, California, has been scrutinized by tax authorities around the world, including in France, Italy, the U.K. and Australia.

The company has used a series of maneuvers to shift profits out of the U.S. and into low-tax countries. The company has used techniques such as the “Double Irish” and “Dutch Sandwich” that route profits through Ireland and the Netherlands into Bermuda.

Effective Rate

In its annual filing, the company reported its effective tax rate as 19.4 percent for 2012, down from 21.2 percent in 2010 and less than half of the combined U.S. federal and state statutory rate of 39.1 percent.

In 2011, the company avoided about $2 billion in taxes by shifting $9.8 billion in revenue to a Bermuda subsidiary, Bloomberg News reported in December 2012. In 2011, the IRS was auditing Google’s offshore deals, including how the company valued software rights and other intellectual property it licensed abroad.

In 2006, the IRS signed off on a 2003 intracompany transaction that moved foreign rights to Google’s search technology outside the U.S., Bloomberg reported in 2011. That means future profits associated with that intellectual property get reported outside the country.

The company reported pretax income in 2012 of $5.3 billion in the U.S. and $8.1 billion outside the country.

Like most large companies, Google is regularly audited by the IRS. The company said it expects the IRS to complete its examination of the 2007, 2008 and 2009 tax years over the next 12 months.

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