France has lost a battle against Google, but is still making the case that US technology multinationals should be paying taxes where the client is not where the business is booked.
Losing a battle
As French investigators raided Google’s offices in Paris in May 2017, the French Ministry of Finance imposed a €1,3bn fine for tax evasion. The case made by France appeared frail, as Google appears to be guilty of little more than tax avoidance, which is legal. Paris argued that it was owed corporate and VAT taxes for the period 2005-2010. At the time, the amount appeared to be a triumphant victory for France, since the UK (€147 million) and Italy (€306 million) had reached out of court settlements for much smaller amounts. But, unlike France, that was money in the bank.
Paris argued that it was owed corporate and VAT taxes for the period 2005-2010. The subsequent fine to Google entailed an element of triumphant defiance of US multinationals that was unprecedented. The UK (€147 million) and Italy (€306 million) had reached out of court settlements with Google for much smaller amounts. But, unlike France, that was money in the bank.
But, unlike France, that was money in the bank, which is more than what Paris can hope for.
On Wednesday, July 12, a court in Paris ruled that Google’s Irish subsidiary was not liable for tax in France. Google argues that its subsidiaries perform different functions, with Ireland concentrating on sales while other EU member states focus on marketing.
The argument put forward by Google and other US multinationals is that tax is payable where profit is booked, not where the customer is based. And that rule stands until the EU legislates otherwise, which is unlikely.
French case study
Google’s French subsidiary declared in 2015 an income no greater than €6,7 million, which is very little given its 700 stuff. But, advertising contracts in France, as elsewhere in Europe, are issued by the Irish subsidiary and the company is liable to pay corporate tax and VAT in Dublin, not France.
The practice of taxing in Ireland economic activity that takes place in other EU member states has aggravated a number of EU member states. That is typical, not exceptional.
Taking on Multinationals, not on tax avoidance
While tax evasion is illegal, tax avoidance is legal. Thus far, the EU has taken action in matters of monopoly practices – which abound in the technology sector – but has failed to take decisive action of tax avoidance, not least because EU member states are engaged in “tax competition.”
Thus far, the EU has taken action in matters of monopoly practices – which abound in the technology sector – but has failed to take decisive action of tax avoidance, not least because EU member states are engaged in “tax competition.”
In June the European Commission imposed a €2.4bn on Google for monopoly practices. But, that is a different matter altogether, since technology companies have an almost “structural” tendency to bundle, integrate, and monopolize that is specific to the sector. Tax avoidance, on the other hand, is a question of governance, that is, global governance.
The newly elected President of France, Emmanuel Macron, has vowed to pursue tax avoidance by major multinationals. On Thursday, the French Budget Minister Gerald Darmanin said France would appeal Wednesday’s court ruling. The real question is whether the appeal will come with a new legal argument. And that would require Paris seeking concerted action, in Brussels.