Google has long been under scrutiny for possible tax fraud regarding its operations in Europe, and now France has decided that its piece of the pie is nearly a billion Euros. Which is somewhere around the equivalent of $1.10 billion USD.
The settlement includes 465 million Euros in back taxes, along with a 500 million Euro fine. This potentially precedent-setting ruling and settlement are the culmination of a four-year investigation into Google’s international business practices.
This settlement is actually dwarfed by the 1.6 billion Euros the Ministry of Finance sought when it raided Google’s Paris offices a while ago.
At that time, officials did not expect things to end peacefully with Google, and were expecting to have to drag the company through court and get a verdict laid out to get its due.
As such, it may well be worthwhile in the end to take a lower settlement rather than continue pushing for the amount that may have actually been owed, had tax law been applied to all facets of Google’s operations.
The massive probe and fine mark the end of only a small part of Google’s international tax fraud saga. For a very long time, the company has been passing much of its European business through an office in Ireland.
Thanks to a loophole in international tax law, this move allows Google to pay Ireland’s comparatively low tax rate, while depriving other European countries of taxes from the revenue that the company is alleged to have earned therein. This behavior is known as using a “tax haven”, and is a form of tax fraud.
Google has been doing this for quite some time and in many ways, with many different low-tax or even tax-free countries. This means that there are tons of authorities playing with different numbers and calculating Google’s revenue that may have originated in their country.
The end goal, in all cases, is to figure out just how much Google may have short-changed these countries on taxes, and get the company to pay up. Rough estimates put the company’s debt to the UK at somewhere around 2 billion Euros, by way of example.
Google is not the only international company to pull a move like this, and no even the only international tech company.
In fact, the use of tax havens is actually fairly common among large international firms, and in most cases, doesn’t even technically run afoul of any applicable laws due to how deals, revenue, and sales are transferred around and concluded.
Essentially, though most of an operation, such as research and development, product testing, manufacturing and such all take place in a certain country, the part that actually generates profit, such as the sale, contract, or designation as an ad firm, happens in a tax haven.
This means that no money is technically made in the higher-tax countries.
This sort of fraud essentially implies that none of the profit from setups like this was derived from operations in the higher-tax countries, which is obviously only true on balance sheets.
The extradition of the profitable side of the business when everything that went into it happened elsewhere is the most common form of tax fraud, and there is talk of international tax reform meant to address exactly this sort of behavior.