Google Faces $1.3 Billion French Ruling Amid `Tax Populism'
Google Faces $1.3 Billion French Ruling Amid `Tax
Populism'
Court to rule on operations of Google’s Irish arm in
France
Decision could have impact throughout French economy
By Gaspard Sebag July 11, 2017, 2:20 AM PDT July 11,
2017, 7:47 AM PDT
Google will find out this week if it owes 1.12 billion
euros ($1.3 billion) in back taxes to France, just days after it was slapped
with a record antitrust fine by the European Union.
Paris judges are set to rule as soon as Wednesday whether
Alphabet Inc.’s Google illegally dodged French taxes by routing sales in the
country out of Ireland. The case hinges on whether Google’s European
headquarters in Ireland should be taxed as if it also has a permanent base in
France.
“The backlash has been unrelenting because tax populism
and Google-bashing are on the rise among certain politicians,” said Maximilien
Jazani, a tax lawyer in Paris. The case could have “extremely harmful” side
effects because any change in how tax law is interpreted would apply to all
companies and could deter investment in France, he said.
Authorities across the continent have been trying to
claim a slice of the billions of dollars of profits Google’s owners kept out of
their grasp using techniques known as the Double Irish and the Dutch Sandwich.
To end a dispute spanning 14 years, it recently struck a 306 million-euro
settlement with Italian tax authorities. Last year, Mountain View,
California-based Alphabet also agreed to pay 130 million pounds in an accord
with U.K. authorities for taxes going back to 2005 after facing sharp criticism
for booking ad sales through Ireland to reduce liability.
Google representatives declined to comment on the French
ruling. The company previously said it complies with French law and was
cooperating fully with officials to answer their questions.
Court Boost
The company got a boost last month when an adviser at the
Paris administrative court delivered a non-binding opinion that Google should
be let off the hook in part because of weaknesses in the legislation.
The French ruling follows the European Commission’s June
27 decision to levy a 2.4 billion euro fine for systematically favoring its own
price-comparison-shopping service in its general search results. The EU case is
one of at least three targeting the search engine amid demands for action from
lawmakers.
In a digital economy, underpinned by the likes of
Facebook Inc. and Amazon.com Inc., Jazani said there should be a strict notion
of “permanent establishment” that’s not linked to where the services are
consumed, in order to avoid territoriality conflicts between states.
‘Legal Uncertainty’
“If you broaden the notion there will be double-taxation
or even multiple-taxation,” the lawyer said. “It will lead to a tax world war
because each state will seek to claim a tax base in their country and create
legal uncertainty.”
But Tove Ryding, tax justice coordinator at the European
Network on Debt and Development in Brussels, said the current rules are “an old
way of thinking” that hark back to years where multinationals had factories in
the countries they sold their products, which the new digital economy exploits
at will.
“If you can sneak around that legal concept you’re free
and can allocate your profit to a country where you pay less taxes,” Ryding
said. “Administrations try the best they can with these dysfunctional rules”
and, in the current setup, France could well lose its case.
The search engine is also embroiled in a French criminal
investigation covering a different time period that has also focused on the tax
status of the company’s Irish unit in France. In that case, French prosecutors raided
the Alphabet unit’s Paris office in May 2016 after months of preparation spent
offline to prevent leaks.
If Google wins the administrative court case, that will
also “unsettle” the criminal case, according to Jazani. “If the facts are the
same, the legal conclusion should be the same.”
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