Wednesday, May 11, 2011

Google Could Pay $500M to DOJ to Settle Ad Investigation

Google has set aside $500 million for a possible settlement with the Department of Justice related to an advertising investigation, Google reported in a filing on Tuesday.

The filing, reported earlier by The New York Times, doesn't indicate that Google has in fact settled. Google also noted that it is currently being audited by the Internal Revenue Service and various other tax authorities.

The charge is being accounted for under general and administrative expenses as part of Google's 10Q filing. A Google spokesman declined to comment, saying it was a legal matter.

Google, meanwhile, was busy launching its Google I/O conference, which included the formal disclosure of its next Android releases, improved video services, and the so-called future of Android, or Android@Home. Google also launched its Google Music Beta, possibly including anti-piracy protections.

Under the heading, "Department of Justice Investigation (Advertising)," the filing notes: "In May 2011, in connection with a potential resolution of an investigation by the United States Department of Justice into the use of Google advertising by certain advertisers, we accrued $500 million for the three month period ended March 31, 2011. Although we cannot predict the ultimate outcome of this matter, we believe it will not have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows."

It wasn't clear what was at issue with regards to the advertising investigation. The DOJ shares antitrust responsibilities with the Federal Trade Commission, which is reportedly prepping its own investigation of Google with regards to its search technology. The DOJ recently approved Google's acquisition of ITA Software, a travel software company, for $700 million.

Google also noted that it was in the process of being audited, but that the company didn't expect any material impact.

"We are under audit by the Internal Revenue Service (IRS) and various other tax authorities," Google said. "We have reserved for potential adjustments to our provision for income taxes that may result from examinations by, or any negotiated agreements with, these tax authorities, and we believe that the final outcome of these examinations or agreements will not have a material effect on our results of operations. If events occur which indicate payment of these amounts is unnecessary, the reversal of the liabilities would result in the recognition of tax benefits in the period we determine the liabilities are no longer necessary. If our estimates of the federal, state, and foreign income tax liabilities are less than the ultimate assessment, a further charge to expense would result."

Bloomberg and others have reported that Google uses a complicated legal structure to keep its tax rates low.

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