Google: Taxes

Last night Google's earnings were announced and one of the interesting questions focused on the company's tax rate, which climbed to 41% for Q4 and increased to 31.6% for all of 2005 (Google had estimated the tax rate at 30%).

Teaching Deferred taxes is difficult as it is, but the Google conference call provides an interesting discussion that might make DT a bit more "real", here it is from the conference call:

George Reyes, Chief Financial Officer

Now I’ll turn to taxes. Our effective tax rate for Q4 increased to 41.8% this quarter and to 31.6% for the year, above expectations of approximately 30% for the year. The amount of tax expense we recognized in any particular quarter is driven by our estimates for the year. And as we’ve said in the past, our estimates for the year are sensitive to the mix of earnings in the US and overseas. These estimates are complex and 2005 was the first year we realized any reduction to our effective tax rate as a result of profits earned overseas under our international structure. At the end of the year, we must true up the tax provision for the year, which could and in the case of Q4, did have a disproportionate impact on the 4th quarter. In calculating our true up for the year, the proportion of expenses allocated to international operations was greater than we expected. Primarily as a result of this a greater percentage of our profits were taxed at a higher domestic tax rate, which resulted in a greater effective tax rate, compared to our expectations. Keeping in mind the complexity of projecting tax rates, we expect our effective tax rate for 2006 to be approximately 30%.