Google at odds with French over tax, records reveal

Fri, Nov 2, 2012, 00:00

IT IS an open secret that relations between France and Google have been under strain in recent years, but court records in Paris lay bare the depth and bitterness of their dispute over the most contentious topic of all: the internet giant’s tax affairs.

At issue is the relationship between Google’s French subsidiary and its European head office in Dublin, which employs 2,000 people and has overall responsibility for the company’s business in Europe, the Middle East and Africa. Google declares its revenue from these regions in Ireland, which means that profits the company makes from selling online advertising to French clients is not taxable in France.

The arrangement means that while Google generated between €1.25 billion and €1.4 billion in revenue in France last year, according to estimates, it paid just over €5 million in corporate tax to the French exchequer.

This has long been a source of anger in Paris, feeding into resentment of Ireland’s low corporate tax rate of 12.5 per cent and a separate dispute between Paris and the Californian tech firm over copyright. What court documents obtained by The Irish Times show, however, is that overt political pressure has been accompanied by quieter but no less intense pressure from the French tax authorities.

On June 30th, 2011, tax officials accompanied by police officers carried out raids at four separate Paris addresses “likely to be occupied by the company Google France and/or the Irish-registered company Google Ireland Ltd” according to legal documents. One of the addresses, 38 rue de l’Opéra, is listed on Google’s corporate website as its French base.

Google says its European advertising business is run by Google Ireland Ltd, and that a contract between the Dublin and Paris subsidiaries limits the French office’s activities to “marketing assistance and service support”.

The French authorities queried this. Their “presumption of fraud” rested on “the fact that employees of Google France appeared to be in charge of the negotiation and management . . . of a portfolio of ‘big accounts’ for the Irish-registered company”, the court noted. And if Google was using the “human and material resources” of the French office for commercial purposes, this should have been declared for tax purposes.

Google’s Irish and French subsidiaries jointly initiated two legal actions at the Paris Court of Appeals over the raids.

In the first, they contested the legal basis for the judge’s order issuing the warrants for the searches. The companies argued that the judge erred by insufficiently setting out the “presumption of tax fraud” and not specifying what period the investigation related to. This was rejected by the court in a ruling dated May 15th this year.

In their second action, the companies took issue with the “underhand” methods used by officers during the raids. They complained that, during the searches, officials accessed files on Google servers that were located outside France, and that they did so by pretending to be staff of Google France. They claimed the tax office had falsely presented the material to the court to the detriment of Google France, and that its statements were “partial and deliberately truncated”. The court rejected Google’s second appeal over the raid on August 31st this year.

Seeking to prove that there were close links between Google’s operations in Dublin and Paris, the Direction Générale des Finances Publiques – an agency attached to the French finance ministry – told the court that telephone and fax lines used to communicate with French clients of the Irish-registered company were in the name of Google France. Google Ireland Ltd was the only client of Google France and the companies shared directors, it said.

Recruitment ads for the Paris office specified that employees would work on “advertising solutions” for clients.

Tax officials said they interviewed the manager of a firm that advertised with Google, who told them that while he received contracts in Google Ireland’s name, these were sent to him by representatives of Google in Paris and that French-based staff were his only contacts.

“The notion of independence” between Dublin and Paris “does not correspond with reality”, the court said in its ruling in May.

Google rejects the French state’s claims. It argued in court that nothing produced by the tax inspectors justified the claim that “employees of Google France have the authority to negotiate and sign purchase and advertising contracts”. The company told the appeals court that officials drew “erroneous conclusions” and that the evidence produced “does not in any way establish any presumption of fraud”.

In a statement last night, a Google spokesperson said: “We have and will continue to co-operate with the authorities in France. Google complies with tax law in every country in which the company operates and with European laws.”

Google and the French: How the story developed

December 2009:With a dispute raging over Google’s plan to digitise all out-of-copyright books held by French libraries, then president Nicolas Sarkozy pledges €750 million for France’s book-scanning project, called Gallica. “We won’t let ourselves be stripped of our heritage for the benefit of a big company, no matter how friendly, big or American it is,” he says.

January 2010:A French commission set up to examine how to support media industries suggests the online advertising revenues of major search engines could be taxed in France as well as in their home countries. Under the so-called “Google tax”, a levy of about 2 per cent would be imposed on search engines’ advertising revenues generated in France.

May 2011:Addressing tech leaders, including Google’s Eric Schmidt, at a G8 forum in Paris, Sarkozy calls for greater state involvement in the internet.

June 2011:French tax officials carry out four raids on Paris addresses linked to Google.

May 2012:The Paris Court of Appeals rejects Google’s first action over the raids. The company contested the legal basis for the search and argued the action was disproportionate.

August 2012:The same court rejects a second complaint by Google over the raids. The firm had taken issue with the “underhand” methods used by officers during the searches.

October 29th, 2012:Google president Eric Schmidt meets president François Hollande. Afterwards, Mr Hollande says France will enact a law 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.

October 31st, 2012:The weekly newspaper Le Canard Enchaîné reports that French tax authorities have made a €1 billion claim against the firm and Paris is using this as a bargaining chip in the newspaper content dispute. Google denies receiving such a claim.