epa05326955 Media members stand outside the Google headquarters in Paris, France, 24 May 2016. According to reports, French police and prosecutors have raided the Google offices in Paris as part of an investigation into a alleged 1.6 billion euro tax fraud. EPA/JEREMY LEMPIN
Google’s headquarters in Paris © EPA

French prosecutors have turned up the heat in the spreading European tax war against US tech giants, with an early-morning raid on Tuesday on Google’s Paris office.

The raid involved 25 data experts and was part of a preliminary investigation into aggravated tax fraud opened in June last year, the French authorities said.

The move comes as European authorities attempt to crack down on the use of complex tax-avoidance schemes by US and other multinational companies to shift profits abroad in order to declare them in lower-tax jurisdictions.

France has led the charge, including with previous raids on Google and Microsoft. Italian authorities claimed victory with a €318m tax settlement from Apple late last year and have also been eying Google.

Reports have suggested that the French state is seeking as much as €1.6bn in back taxes from Google, though an official familiar with the case would not comment on the amount.

The company has based its European headquarters in Dublin and channels its profits through Ireland, resulting in it paying only €5m in corporate tax in France in 2014 compared to revenues that year of €225.4m, according to the company’s filings.

France’s aggressive stance comes in stark contrast to the tax accommodation that Google struck with the UK earlier this year. Though the UK is the internet company’s second-biggest market, it reached a settlement that will require it to pay only an extra £130m in back taxes dating back to 2005, an amount that was condemned as a “sweetheart deal” by the opposition Labour party.

In a statement, the French financial prosecutor’s office said: “The investigation aims to verify whether Google Ireland Ltd has a permanent base in France and if, by not declaring parts of its activities carried out in France, it failed its fiscal obligations, including on corporate tax and value added tax.”

The dispute revives a long-running French attempt to force internet companies to pay more tax. Prosecutors raided Google’s Paris office in 2011 as part of a similar investigation into whether the company should be ruled to have a “permanent establishment” in France, something that would preclude it from routing its advertising sales through Dublin. But the company is likely to argue that it would not have extra tax to pay even if the Irish business was found to trade in France.

Similar arguments have been raging in Australia, where the company recently announced that it has restructured its organisation so it will book more revenues in the country rather than in Singapore. The decision was made to avoid hefty penalties from a new anti-avoidance law, but it is not clear whether it will result in significantly more tax being paid.

In the past, France and Spain have both put forward proposals for a new class of “virtual” permanent establishment, which would make it possible to tax companies such as Google even if when they do not do business through a physical presence in the country.

€5m

Amount of corporate tax Google paid in France in 2014 while revenues were €225.4m

Google said in a statement: “We comply with the tax law in France, as in every other country in which we operate. We are co-operating fully with the authorities in Paris to answer their questions, as always.”

Antoine Colonna d’Istria, a lawyer and authority on French tax issues, said that using such a big number of data experts was unusual.

“They have clearly entered a second stage of the investigation, trying to gather information that they have not been able to get hold of in a normal inquiry,” he said.

Mr Colonna d’Istria added that under French law, the investigators had 24 hours to search for information on the premises, including accessing servers on the network but not necessarily in France.

In February, Michel Sapin, France’s finance minister, said the amount that Google would have to hand over to the government would be “way bigger” than the UK settlement.

The European Commission is also pursuing an investigation into whether some EU governments used illegal state aid when giving tax breaks to large multinational companies, including Apple, Amazon and McDonald’s.

Google’s tax arrangements are not the subject of a full probe by Brussels, but Margrethe Vestager, the competition commissioner, is studying a complaint from the Scottish National party in relation to Google’s fiscal arrangements with UK authorities.

The raid on Google’s Paris offices comes just days after the US company appealed against a demand by French regulators to apply the EU’s “right to be forgotten” ruling outside Europe.

CNIL, France’s data protection agency, called on the company to remove search results deleted under the controversial clause from all its websites, even if they are based outside the EU.

The company currently removes search results from European domains, such as .fr in France or .co.uk in Britain. Earlier this year, it also started removing results from all international domains, such as .com, if they are accessed from the applicant’s country.

But CNIL wanted Google to scrub results from all versions of its website worldwide. The regulator issued the company with a €100,000 fine this year for failing to do so.

Additional reporting by Christian Oliver

Get alerts on France when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article