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What Google Gets From Motorola: A Tax Dodge, Not Just Patents

One of the most puzzling things about Google's (GOOG) interest in buying smartphone maker Motorola Mobility (MMI) is the simple question of why Google wants the whole company in the first place. The presumption has been that Motorola's patents would help Google defend Android from a list of plaintiffs so long that it's surprising that there isn't a ticket kiosk outside Larry Page's office.

It sounds sensible until you realize that it's not. Motorola's patents may do nothing to protect Google and its hardware patents. Heck, they didn't do much to keep both Apple (AAPL) and Microsoft (MSFT) from suing the handset manufacturer. But a Reuters report suggests another possible motive. Motorola may be a peerless tax dodge.

Pass the savings
Motorola's been losing money about as fast as Android has been gaining market share. Last year, it was in the red $86 million, which was nothing compared to the nearly $5 billion it lost in 2007 through 2009. However, as Reuters writers Lynnley Browning and Nanette Byrnes explain it, that hasn't really helped the company on the tax front:

These are deductions which Motorola Mobility has been unable to use because of a faltering business that has failed to generate the revenue against which to offset them. The deductions include those for research and development, tax losses in the United States and abroad, and credits carried over.
Under a change of IRS rules in 2009, Motorola could only use tax credits to offset its own income -- and it still doesn't have any. Google, in the meantime, made $11 billion before taxes. Last year.

Larry Page invited us for a drink and said we're buying
Google has a long history of artfully using tax law in multiple countries to reduce what it owes to a trickle.

If Google gets to buy Motorola, at a minimum it will pick up $1.7 billion in initial tax deductions and a $700 million in further annual deductions through 2019. That would total $8 billion, which would be 64 percent of the $12.5 billion Google is supposed to pay for Motorola in the first place. But wait -- there's more. And more.

Apparently, Motorola has made little use of the foreign tax tactics that have saved Google billions. So, if Google books Motorola's revenue the right way, it might create even more loopholes for the company to drive its armored trucks through. Who knows? If Google plays its cards right and is a little lucky, the effective price of Motorola might be zero.


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