GOOGLE’S TAX status in Ireland has come under the spotlight in France after a report that tax authorities in Paris have made a €1 billion claim against the firm.
Weekly newspaper Le Canard Enchaîné said the tax claim related to so-called transfer pricing, or how Google allocates income between its French arm and its European headquarters in Dublin so as to avoid taxes.
It claimed the issue was raised during a meeting between President François Hollande and Google chief Eric Schmidt on Monday, and that Paris was using it as a bargaining chip in a separate dispute over whether the internet giant should pay fees to French newspapers for linking to their content.
Google, which employs almost 2,000 people in Ireland, denied having received such a tax claim and said it would continue to co-operate with the French authorities. “Google adheres to the tax legislation of every country in which the company operates, and to European rules,” it said in a statement.
However, the report reignited long-running French debates over the firm’s tax arrangements and Ireland’s low company tax rate of 12.5 per cent. Mr Hollande’s predecessor, Nicolas Sarkozy, put heavy pressure on Dublin to increase the rate, which is significantly lower than France’s own nominal rate of 33 per cent.
The report comes as France looks at ways to get internet firms to pay more taxes on revenue earned in France. Under a draft law that will be debated in parliament in coming months, firms such as Google, Amazon and Facebook would be subject to new taxes in areas such as advertising and e-commerce. Google generated between €1.25 and €1.4 billion in revenue in France last year, primarily through internet advertising, according to estimates.
It paid just over €5 million in corporate tax to the French exchequer, however, because the bulk of its European advertising revenue is declared in Ireland.
The company employs about 400 people in France but their activities are limited to “marketing assistance and service support” for the benefit of Google Ireland, it says.
The news weekly L’Express reported in March that French tax authorities were looking into whether Google had correctly paid company and sales taxes between 2008 and 2010, and speculation has been rife that a tax claim against Google was imminent.
Google cut its taxes considerably in recent years by using a strategy known as the “Double Irish”, under which it channelled foreign profits through its Irish operation to Bermuda.
This helped reduce its overseas tax rate to 2.4 per cent and its company-wide effective tax rate to 22.2 per cent, according to research based on regulatory filings in six countries, which was published in 2010.
Google’s tax reduction method takes advantage of Irish tax law to legally move profits in and out of subsidiaries in Ireland, eventually lodging them in Bermuda, which levies no corporate income taxes. Firms that use the “Double Irish” arrangement – so named because it relies on two Irish companies – avoid taxes at home and abroad.
The tactics of Google, which are common among multinationals, depend on “transfer pricing” – paper transactions among a company’s subsidiaries that allow for the allocation of income to tax havens while attributing expenses to higher-tax countries.
The company has also moved income through the Netherlands, in a technique known as the “Dutch Sandwich” because it sees the country acting as a stopover between two other jurisdictions.
Following his meeting with Mr Schmidt in Paris on Monday, Mr Hollande said France would enact a law if necessary to settle a dispute between Google and French newspapers, which want the search engine to hand over a percentage of the advertising revenue it earns from directing users to their content.
Google has strongly resisted the idea of commission fees. In a letter to several French ministries this month, the company said such a move would “threaten [Google’s] very existence” and require it to remove all links to French newspaper content.
Culture minister Aurélie Filippetti said she was surprised by the tone of the letter, adding: “You don’t deal with a democratically elected government with threats.”
