This story has been going on for years, but it looks like France’s equivalent of the IRS (Direction générale des finances) wants more proof. According to Le Monde and Le Parisien, Google’s office in Paris is being raided right now. According to the DGF, Google should be paying more taxes in France as the company has been doing more than just tax-optimization strategies. Google may be facing a $1.8 billion fine (€1.6 billion).
According to Le Parisien, a hundred DGF employees have started collecting documents since 5 AM this morning. It’s unclear whether this raid is related to the ongoing investigation, but it seems very likely.
Back in 2012, Le Canard Enchaîné revealed that Google was facing a $1.3 billion fine (€1 billion) for tax penalties in a tax noncompliance case. In 2011, Google France reported €138 million and paid €5.5 million in taxes. Comparatively, the Irish subsidiary had been doing amazingly well, reporting €12.4 billion in revenue the same year.
Google doesn’t hide that it’s been doing tax optimization like countless of other tech giants, such as Apple, Amazon, Facebook and others. Tax optimization isn’t illegal. According to Google, they only handle support and don’t sign contracts in France. Yet, salespeople were based in France in 2011 and signed French contracts with French clients. This is key to this investigation.
Advertising contracts with French advertisers were taxed in Ireland in 2011. But the DGF considers them as French contracts and expects Google to pay taxes for them. Google contested the accusation.
In February 2016, Reuters and the AFP reported that the DGF asked Google to pay $1.8 billion (€1.6 billion) for the same case. The DGF and Google declined to comment.
Here’s a glimpse of the DGF investigation. Google’s European HQ is called Google Ireland Holdings. It is the owner of another company, Google Ireland Limited. Google Ireland Limited cashes in all the revenue from all European subsidiaries. But, in order to lower the tax rate, Google Ireland Limited pays billions of royalties to Google Ireland Holdings. In 2011, it was $4.6 billion. It drastically lowers the profit of Google Ireland Limited.
Despite the name, Google Ireland Holdings’ cost center is in Bermuda and is called Google Bermuda Unlimited. In Bermuda, corporate tax doesn’t even exist. But there is a tax if you want to transfer big sums from Ireland to Bermuda. That’s where the Netherlands comes in.
If you transfer money from Ireland to the Netherlands, then to Bermuda, there is no tax. Google Netherlands Holdings BV, you guessed it, is a subsidiary that only transfers money from Ireland to Bermuda.
Again, none of this is illegal. The main issue in France is that some Irish contracts could be French and could be subject to French taxes. That’s why Google is being raided right now.