French Tax Authorities Raid Google

By: David J. Herzig

Don’t ever say that The Surly Subgroup is not on some breaking news.  It is being reported starting at 5 am French time some 100 French authorities conducted a “ultra secrète” raid on Google’s Paris headquarters.  This past February, Google was assessed a deficiency of some 1.6 Billion euros in back taxes.

Une perquisition a lieu ce mardi au siège de Google à Paris.  LP/F. DUGIT

There is nothing really new about the Google tax story.  Members of the European Union are in constant complaint about the use of tax strategies used by multinationals.  With awesome names such as the Double Irish with a Dutch Sandwich, multinationals that have portable revenue generation items, e.g., algorithms, can house those assets in low tax EU jurisdictions such as Ireland.  By then using EU laws to their advantage, e.g., EU tax law protects companies from paying tax in a non-permanent establishment country, they can avoid or mitigate tax.

In January this year, Google settled similar claims with the United Kingdom.  Google settled its total deficiencies for 130 million Pounds.  In that case, the UK used its new diverted profits tax (DPT).  The DPT, or the “Google Tax” as it was dubbed, was introduced in 2015 to target multinational corporations from artificially routing profits overseas. Essentially, the DPT was a gap-filler to try to circumvent the EU permanent establishment rules.  Many criticized Inland Revenue on the seemingly low settlement.

French Finance Minister Michel Sapin ruled out striking a deal with Google.  He said, “[w]hat I am hearing in other countries … such as France, is that the sums are quite a bit bigger than those in the British deal,” in a conference on the capital markets union.

Up to this point, the normal negotiations over a tax deficiency seemed to be taking place. From what I understand, French tax controversy works a lot like the United States.  You receive a preliminary assessment.  After that preliminary assessment, either a second assessment or a final assessment is issued.  Then after the final assessment, you can challenge that in court.

The raid may signal that we are moving into the final assessment stage of the process.