Industry News

Google overturns billion-dollar French tax bill

Thursday, 13 July, 2017

A Paris court has struck out the EUR1.12 billion bill imposed on Google by the French tax authorities.

Google's European headquarters are in the Republic of Ireland, and the vast majority of its revenues (earned from advertising sales) were booked through that office in the 2005-2010 period. As such, the corporation tax paid on the associated profits was taxed at a much lower rate, if at all, than if the income had been recorded in France.

The French authorities have argued since at least 2011 that Google has a permanent establishment in France, and that revenues earned from French sources should have been booked there and the associated profits liable to corporation tax in France. In 2016, authorities assessed the company's tax liability for the five-year period at EUR1.12 billion (USD1.27 billion). They have also conducted raids on Google's offices, searching for evidence of criminal fraud, but so far without result.

Google challenged the assessment, arguing that its French subsidiary is not an autonomous business, and only provides 'preparatory' administrative and marketing support to Google's sales operation in Ireland. It does not accept advertising requests from local clients in France, and all orders must be approved by the headquarters in Ireland. Google France, says the company, does not actually execute any sales, but instead derives its revenues from Google in Ireland by charging them for its support service - thus reducing its taxable profits in France still further. The company uses the same model in several countries, but France – along with other governments – consider it to be fictitious and merely a tax avoidance structure.

The Paris Administrative Tribunal, however, agreed with Google's appeal. It ruled that the company did not have a permanent establishment in France during the period, and so was acting lawfully by booking advertising sales at its European headquarters in Ireland.

France's Directorate-General for Public Finance reacted by announcing that the authority is already working on an appeal against the judgment.

  • In May 2016, Google agreed to pay Italy's tax authority EUR306 million to settle a dispute over corporation tax on EUR1 billion of its Italian revenue between 2002 and 2013.

Sources

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