This is how the Google system works: All earnings achieved in Europe are posted to Google Ireland Ltd. German fiscal authorities have no access to these revenues and profits, because the company does not maintain any places of business in the classic sense in Germany.
Google Ireland reported revenues of €10.1 billion in 2010, but they were almost completely consumed by advertising expenses and personnel costs for the company's 2,000 employees. The largest expense, about €7.2 billion, consisted of licensing fees that Google Ireland paid to another Google subsidiary in the Netherlands. In this manner, almost all of the income was sucked away from Dublin. The Irish state was left with only €16.8 million in revenues subject to corporate income tax, as well as the taxes on employee wages.
Google Netherlands Holdings B.V. in Amsterdam, which collected the licensing fees from Dublin, is a company without employees. It paid only €2.7 million in corporate income tax in the Netherlands. That's because the Dutch company funneled the lion's share of its revenues from Ireland back to the Emerald Isle, in the form of a licensing fee to Google Ireland Holdings.
Shuffling billions back and forth may seem absurd to the uninitiated, but it's worthwhile. Google Ireland Holdings is in fact domiciled in two places. It was established under Irish law, but its administrative headquarters are in Bermuda. The benefit for Google is that there's no corporate income tax in Bermuda.
Spiegel: Multinationals Find Loopholes Galore in Europe