|Dr Eric Schmidt, chairman of Google, meeting François Hollande, French president, at the Élysée Palace, Paris, Oct 29, 2012|
Google revealed this week that France's tax authority has hit it with a tax
demand in respect of underpayments arising from the Double Dutch-Irish corporate
tax avoidance scheme. The search engine giant didn't give an estimate of the
liability but It may have to pay as much as €1bn.
Google disclosed the assessment in a securities filing Thursday - - the story was first reported by The Financial Times.
Google said in its
Form 10Q filing with the US Securities and Exchange Commission:
In March 2014, we received a tax assessment from the French tax authorities.
We believe an adequate provision has been made and it is more likely than not
that our tax position will be sustained. However, it is reasonably possible that
resolution with the French tax authorities could result in an adjustment to our
In February several French media outlets reported that the tax authorities
were preparing an assessment worth between €500m and €1bn.
Google claims that staff across Europe provide services to Google's operation
in Dublin where sales are closed.
However, the structure is widely seen as an abuse of the European Union's
internal market to minimise tax.
Google France in 2012 had almost 400 employees and it
declared revenue of only €193m, and paid €6.6m in corporate tax while Google Ireland reported
revenue of €15.5bn in 2012 and it paid €33m in corporate tax in 2012.
Earlier this month Pascal Saint-Amans, the director
of the Organisation of Economic Co-operation and Development's (OECD) tax
centre - - which is working on a project to develop new international
business tax rules for the Group of Twenty (G-20) leading developed and emerging
countries -- said that the think-tank will propose
the axing of the Double Dutch Irish Sandwich tax dodge scheme.
The Finfacts submission to the OECD on taxing the digital economy
The Public Accounts Committee
of the House of Commons last June published a
report [pdf] which charges Google
with massive tax avoidance in the UK.
To avoid UK
corporation tax, Google relies on the deeply unconvincing argument that its
sales to UK clients take place in Ireland, despite clear evidence that the
vast majority of sales activity takes place in the UK. The big accountancy
firms sell tax advice which promotes artificial tax structures, such as that
used by Google and other multinationals, which serve to avoid UK taxes
rather than to reflect the substance of the way business is actually
conducted. HM Revenue & Customs (HMRC) is hampered by the complexity of
existing laws, which leave so much scope for aggressive exploitation of
loopholes, but it has not been sufficiently challenging of the manifestly
artificial tax arrangements of multinationals. HM Treasury needs to take a
leading role in driving international action to update tax laws and combat
Hodge MP, chair of the committee, commented:
enormous profits in the UK. But despite an $18bn turnover between 2006 and
2011 it paid the equivalent of just $16m in taxes to the UK government.
“Google brazenly argued
before this committee that its tax arrangements in the UK are defensible and
lawful. It claimed that its advertising sales take place in Ireland, not in
“This argument is
deeply unconvincing and has been undermined by information from
whistleblowers, including ex-employees of Google, who told us that UK based
staff are engaged in selling. The staff in Ireland simply process the bills.
Google also conceded at this second hearing that its engineers in the UK are
contributing to product development.
“The company’s highly
contrived tax arrangement has no purpose other than to enable the company to
avoid UK corporation tax.
has been damaged by these revelations of aggressive tax avoidance. That
damage will not be repaired until the company arranges to pay its fair share
of tax in the country where it earns the profits from the business it