Following last week’s raid of Google’s offices in Paris, French authorities have iterated that the country will not follow through with a Google tax deal like the one signed by the American Internet giant with UK authorities a few months back.
French Finance Minister Michel Sapin said that his country will “go all the way” in its pursuit of back taxes from multinational companies like McDonald’s, Starbucks and Google.
In a clear dig at UK Primer Minister David Cameron’s earlier deal with Google, Sapin stated that France doesn’t "do deals like Britain, we apply the law."
French tax authorities believe that Google has been involved in aggravated tax fraud and could owe the country close to 1.6 billion Euros in unpaid corporation tax after having only paid a total of 5 million Euros.
Operation Tulip Unveiled!
In what could be taken as a scene from a spy film, this week the head of France’s Financial Prosecutors, Eliane Houlette, said that her team of tax probe investigators spent a full year working on the case offline.
“In order to protect this secret, we decided that we would give another name to Google – Tulip – and never pronounce Google’s name. And we worked offline on this investigation for nearly a year. We used one computer, but only as a word processor,” Houlette said.
According to Houlette, Google France, which has a staff of close to 700 employees, arranges “advertising deals with industrial and economic operators, yet this company is a front,” with Google alleging that their offices in Ireland are actually responsible for the job.
“This is a case of permanent-establishment avoidance,” and the American multinational “nearly doesn’t pay any taxes,” says Houlette.
The Financial Prosecutors head also said that the analysis and processing of the copious amounts of data confiscated during last week’s raid could take years to be completed.
Will France Win Google Tax Battle?
Certain analysts, however, think that France is fighting a losing battle and Google will emerge unscathed from this investigation.
Blogging for Forbes, Tim Worstall, a Fellow at the Adam Smith Institute in London, believes “France will lose this case.”
Worstall says, “Not because in some sense of cosmic justice that either side are right here. But simply because we all know that economies work better within the rule of law…Google Ireland and those advertising sales are righteously taxable in France if and only if that specific company has a permanent establishment in France,” which according to Worstall they don’t.
Google's Tax Problems: Why Now?
Renae Merle, writing for the Washington Post, says all this action comes at a time when European nations are paying closer attention to “the more than $2 trillion in overseas profits that U.S. corporations have refused to bring back to the United States, where they would face a hefty tax bill.”
According to University of Michigan Law, Professor Reuven S. Avi-Yonah, while the US hasn’t actively pursued these funds, “the Europeans, facing serious austerity, they look at this [money] and say, ‘Some of it belongs to us.’”
A Reuters article reports that the French government recently announced “it had raked in 3.3 billion euros in back taxes and penalties from just five multinationals in 2015.”
On June 1st, France’s tax authorities, following a two-year audit of Booking.com, said they will be seeking close to 400 million dollars in back taxes from the travel-booking site.