France Raids Google in Tax Probe -- WSJ
25 May 2016 - 5:04PM
Dow Jones News
Alphabet unit says it is cooperating and complies fully with the
country's laws
By Sam Schechner
PARIS -- Dozens of tax investigators swooped into Google's
French headquarters on Tuesday in a surprise raid, escalating a tax
dispute in which French authorities have sought more than EUR1
billion ($1.12 billion) from the search firm.
France's tax prosecutor said the raid is part of a newly
disclosed probe, opened in June 2015, into aggravated tax evasion
by the company, now a part of Alphabet Inc. That probe stems from a
complaint from France's tax authority, which has since at least
2011 been investigating Google and demanded more than EUR1 billion
in back taxes and fines, according to people familiar with the
matter.
Google's office in central Paris, set up in a period mansion,
was sealed off tightly on Tuesday. The large wooden doors that open
onto its courtyard were closed and an outside consultant for Google
said she was unable to get in for a meeting because of the
continuing raid.
"We are cooperating with the authorities to answer their
questions, a Google spokesman said. "We comply fully with French
law."
The raid is a new signal that Google's and other tech companies'
long-simmering tax disputes in Europe are starting to boil. The
French case is among biggest in a series that could lead other tax
authorities and other companies to seek similar back taxes and
tax-evasion fines. Italy, which reached a tax settlement between
Apple Inc. late last year, is also pursuing Google for around
EUR300 million in back taxes.
The European Union's executive arm has also been investigating
alleged sweetheart tax deals enjoyed by Amazon.com Inc. and Apple
Inc., cases that could lead to orders to repay years of back taxes.
Both companies deny receiving any special treatment.
The threat of legal action -- coupled with new tax rules
proposed by the Organization for Economic Cooperation and
Development, and a new "diverted profits tax" in the U.K. -- has
also raised pressure on companies to change their tax structures to
pay more taxes in countries where they do business.
Facebook Inc. in April began directing U.K. clients to start
paying an affiliate in the country rather than funneling that money
through Ireland and then on the to Cayman Islands, boosting its tax
payments in the U.K. Last summer, Amazon.com Inc. made a change to
its European structure to begin collecting revenue from units in
individual European countries, including France, rather than
through Luxembourg.
Google also said in January that it would make a similar change
in the U.K., effectively boosting what it would pay in taxes there.
But that commitment was also coupled with a GBP130 million ($190
million) settlement of a tax audit by U.K. authorities stretching
back a decade, leading to criticism from politicians who said
France's ongoing probe showed that the company should have paid
more.
The U.K. is Google's second-largest market after the U.S., with
$5.15 billion in revenue from U.K. clients for the first nine
months of 2015. The company doesn't disclose the revenue it gets
from French clients, but analysts have estimated that it comes in
at No. 3 in Europe, behind Germany.
In the wake of Google's U.K. tax deal, people familiar with the
matter said that the company wasn't in any serious discussions to
settle its French case, because the gap between what the French tax
authority is demanding and Google thinks should be paid was so
large. "Both sides are very confident of their positions," one of
the people said at the time, adding: "Very likely it will end up in
court."
At issue in the French tax case is a common one in Europe, where
companies book all of their client revenue at a headquarters in one
EU country while reimbursing units in other countries for their
costs for marketing, support and other ancillary functions. Among
those that use the structure are Uber Technologies Inc. and Airbnb
Inc., according to company filings.
French authorities argue however that Google, which collects the
vast majority of its revenue from European clients at its Irish
unit, actually does more business in France than that structure
implies. Specifically, they argue that Google executives negotiate
advertising deals in Paris, and that such activity gives Google's
Irish unit a "permanent establishment," or taxable presence, in
France.
Google has argued however that the hundreds of salespeople and
programmers it employs in Paris don't actually close any
advertising deals with clients. Most Google advertising revenue
comes from automated systems where advertisers buy ads to appear
when Google users search for a certain word.
"The investigation aims to see whether Google Ireland Ltd, has a
'permanent establishment' in France, and in not declaring some of
its activity in French territory hasn't fulfilled its tax
obligations, notably in terms of income tax and sales tax,"
France's financial prosecutor's office said Tuesday, while its
officers -- including some 25 IT experts -- were still holed up in
Google's offices.
The question in this case may lead to years of litigation across
multiple countries and companies. Under new OECD recommendations,
the standard for how to determine whether a company has a permanent
establishment in a given country has changed to push more taxable
activity to countries where companies' customers are based, though
it remains unclear so far how much, tax lawyers have said.
Write to Sam Schechner at sam.schechner@wsj.com
(END) Dow Jones Newswires
May 25, 2016 02:49 ET (06:49 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Alphabet (NASDAQ:GOOG)
Historical Stock Chart
From Apr 2024 to May 2024
Alphabet (NASDAQ:GOOG)
Historical Stock Chart
From May 2023 to May 2024