French police raid Google's Paris headquarters as part of £1.2 billion fraud investigation

Calls for Britain's 'sweetheart' tax deal with Google to be probed after French police raid internet giant's Paris headquarters as part of £1.2 billion fraud investigation

French cops yesterday searched Google's Paris offices as part of tax probe
They believe the company owes 1.6billion euros in back taxes, it is claimed
Google is one of several companies that pays low taxes by shifting revenue
The country's EU base is Ireland, which has low corporate tax rates

By COREY CHARLTON and JESSICA WARE FOR MAILONLINE

PUBLISHED: 07:16 EST, 24 May 2016 | UPDATED: 19:59 EST, 24 May 2016
    
Calls have been made for Britain's 'sweetheart' tax deal with Google to be probed in the wake of a dawn raid on the internet giant's Paris headquarters.

It was launched yesterday as part of an investigation into ‘aggravated tax fraud’ and money laundering.

Police officers, five magistrates, 25 computer experts and around 100 tax officials entered Google's premises in the French capital at 5am.

The company is accused of owing the French government £1.2billion in unpaid taxes.

The aggressive approach adopted by France towards the tech firm has been contrasted unfavourably with the ‘sweetheart’ deal struck with the British government.

In January, Google agreed to pay £130million to cover a decade of back taxes after a six-year probe by HM Revenue & Customs.

But France’s socialist government has pointedly ruled out striking a similar deal with the company over back taxes.

Meg Hillier, chairwoman of the Commons public accounts committee, told The Times that MPs would ask HMRC representatives on June 13 whether they had requested from French officials any of the evidence that precipitated the raid.

She said: 'HMRC has previously said it could revisit the deal if they receive more information from the French and Italians.

'We'll see if they have asked for it.'

The raid in France is one area of EU officials attempting to crack down on big businesses avoiding tax, with companies such as Apple, Amazon, Fiat and Starbucks in the firing line.

'We respect French legislation and are fully cooperating with the authorities to answer their questions,' a Google spokeswoman said on Tuesday.

A source close to the matter said in February that French authorities believe the Californian group owed €1.6 billion in back taxes.

Its European operations are headquartered in Ireland, which has some of the lowest corporate tax rates in Europe.

The PNF said the probe, launched in June 2015, aimed to 'check' whether Google Ireland Limited, 'by not declaring part of its activity carried out on French territory... has failed in its tax obligations, notably in terms of company tax and value-added tax'.

Google France received a 'notification' of the investigation back in March 2014, which did not give any precise figures.

Italy has demanded more than €200million from Google, which is accused of perpetrating tax fraud there for years.

OTHER GIANTS IN THE DOCK: MAJOR FIRMS AND CORPORATION TAX

Facebook: The social media titan paid just £4,327 in corporation tax in 2014, despite reporting UK revenues of £105million.

Apple: The US-based technology firm behind the iPad and the iPhone made £34billion in profit during the year to September 2014.

Experts estimate that the UK accounted for £1.9billion of that profit, but the firm only paid £11.8million in British corporation tax.

Amazon: The online shopping giant took £5.3billion in sales from British shoppers in 2014 but paid just £11.9million in tax after announcing profits of £34.4million.

Starbucks: The coffee chain paid just £8.6million of tax over 14 years between 1998 and 2012 when sales totalled £3billion.

But latest company filings show it paid £8.1million in corporation tax for last year on profits of £34.2million.

It has been raided by French authorities before, in June 2011, during an investigation into transfers to its Irish headquarters.

In January, Google agreed to pay £130million in back taxes to Britain, prompting criticism from opposition lawmakers and campaigners. 

At the time the U.S. online search firm, which has faced severe criticism of its UK financial arrangements, said the payment would cover back taxes from 2005 to 2015.

It also agreed to make changes so that future payments to HM Revenue and Customs will 'reflect the size and scope of our UK business'.

'We have agreed with HMRC a new approach for our UK taxes and will pay £130million, covering taxes since 2005,' said a spokeswoman for Google.

'We will now pay tax based on revenue from UK-based advertisers, which reflects the size and scope of our UK business.

'The way multinational companies are taxed has been debated for many years and the international tax system is changing as a result. This settlement reflects that shift and is in line with recent OECD guidance.'

The EU has also been investigating 'tax rulings' by some member states that benefit multinationals.

Brussels is probing online retailer Amazon's tax arrangements in Luxembourg, one of a series of such probes targeting major global firms, including Apple, Starbucks and Fiat.

Google CEO Sundar Pichai defended the Internet giant's tax practices during a visit to Paris in February.

'We're a global company. We have to abide by tax laws everywhere, we do abide by local tax laws in every single country,' he said.

'We're advocating strongly for a simpler global tax system,' he added.

However, a source inside France's tax authority said in February that bargaining may still be possible.

'This does not mean that Google will ultimately pay 1.6 billion,' the source told AFP. 'There will be appeals, and perhaps a negotiation in the end, in particular on penalties.'

Web: This is Google's complicated web of holding companies that allows the web giant to reduce its international tax bill. Google US has set up two Irish companies, one of which is based in Bermuda, with a middle company in the Netherlands. The network allows revenue from around the world to be sent back to Bermuda via Ireland and Holland, with their generous tax rates, allowing Google to reduce its tax bill
Google manages to reduce its tax bill by using a set of subsidiary companies across the globe.

The network - nicknamed the 'Double Irish and Dutch Sandwich' - is hugely controversial but totally legal.

Google moved its headquarters for Europe, the Middle East and Africa to Ireland in 2008 to benefit from the country's lower tax rate on profits.

In Britain, its biggest market outside the US, Google is classified as having no 'fixed base' so none of its sales are technically made in the UK.

It means when a British company buys a Google advert for the UK, for example, the money goes straight to Dublin, meaning it pays little tax to the UK Treasury.

After paying Ireland's lower corporation tax rate of 12.5%, international profits are then funnelled via Google Netherlands Holdings, taking advantage of generous tax laws there.

The profits are then sent to Google's main overseas company, another Irish business domiciled in Bermuda - where the corporation tax rate is zero.

This complicated arrangement is explained by experts as the Double Irish and Dutch Sandwich - with the Irish businesses being the bread and the Dutch subsidiary being its filling.

It means that Google's overseas tax rate on all its profits falls to around five per cent when in the UK it would have to pay 20 per cent.

Though this process has been branded 'immoral' by MPs, it is not illegal and Google says it has abided by international tax rules.

The company also says its Bermuda operation does not impact the tax it pays in the UK.

Executives say the reported UK profit margins are far below the group average because most of its algorithms and codes, which drive the company's profits, are developed outside the country.

Google still pays the majority of its taxes in America, but on its American profits only. 




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