Nobody really wants to pay more tax than required and it seems like google did check with the IRS for a decision prior to setting up the arrangement (usually these types of strategies are expensive to setup so paying the IRS for a ruling ahead of time is a good strategy). It reads like they pushed the limits though of the strategy and so got the IRS attention. I don't really fault them much - IRS letter rulings aren't cheap - and it's easy - much easier than most people think - to go a foul of tax rules. Much worse in my books are companies or individuals that have offshore entities that are used to hide income. So if I setup an offshore entity and shift my investments there - any income earned is still taxable in the US - but I simply do not report the income and if no tax reporting treaty is in place, then I have successfully dodged the IRS. This is clearly illegal. These sorts of shelters are used for hiding assets from angry ex-spouses and so forth as well which is also very questionable.