A French court has discharged Google’s €1 billion back taxes bill after finding that the search giant does not have sufficient physical operations in France to warrant paying the additional taxes sought.
The Tribunal Administratif de Paris handed down five judgments in the case on Wednesday after Google had challenged the corporate income tax, withholding tax, VAT, minimum business tax, and business value-added tax reassessments it received for its operations in France.
On discharging Google’s corporation tax and withholding tax reassessments, the court found that Google did not have a permanent establishment in France; rather, it is based in Ireland and simply carries out some functions in France.
In regards to VAT, the court said that Google’s absence of servers and staffing in France makes it incapable of performing many services due to a lack of both human resources and technical equipment in that country.
“After a thorough review by the Public Rapporteur, the French Administrative Court of Paris has confirmed Google abides by French tax law and international standards,” a Google spokesperson told ZDNet.
“We remain committed to France and the growth of its digital economy.”
In a statement [PDF], the French government said its Directorate-General for Public Finance would analyse the judgments alongside the fair taxation of companies operating in the digital economy.
The government said it has two months to appeal the judgments, and is already working on doing so.
Back in May 2016, French financial and tax authorities accompanied by 25 IT specialists had conducted a 5am raid on Google’s Paris HQ in an effort to procure evidence of the company’s tax evasion practices, with Google saying it was fully complying with French law and cooperating with authorities.
France was originally seeking around €1.6 billion in back taxes after criticising the company for using aggressive tax optimisation techniques, a finance ministry source said in February last year.
“The investigation aims to verify whether Google Ireland Ltd has a permanent base in France and if, by not declaring parts of its activities carried out in France, it failed its fiscal obligations, including on corporate tax and value added tax,” the prosecutor’s office said in May 2016.
In May, Google was ordered to pay €306 million in back taxes to Italy and Ireland, however, in response to a criminal investigation into tax avoidance. Of this amount, €303 million was attributed to Google Italy and €3 million to Google Ireland.
Similarly, Google agreed to pay a £130 million settlement back taxes to the United Kingdom at the start of last year, to account for all of its missed taxes since 2005.
This followed the UK government’s parliamentary inquiry into Google’s tax avoidance following demands from the UK parliamentary Public Accounts Committee for Her Majesty’s Revenue and Customs to look into Google’s tax affairs back in 2013 — Google had faced heavy criticism for paying just $16 million in tax on turnover of $1.8 billion between 2006 and 2011.
Google is also currently fighting its Australian tax bill, in May confirming that it will “lodge an objection” against its amended income tax assessments it was issued by the Australian Taxation Office (ATO).
“Such contingencies relate to reviews for open tax years as well as certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business,” Google wrote in a filing to the Australian Securities and Investments Commission (ASIC).
“The company will continue to uphold its positions against any and all such claims.
“The company will lodge an objection and make a payment to the Commissioner of Taxation to stay recovery action, consistent with the Australian Taxation Office’s practice.”
Google had been criticised by the Australian government for using the so-called Double Irish Dutch Sandwich, which involves funnelling money through foreign countries in order to pay a lower tax rate.
Google was audited by the ATO for tax avoidance back in 2015 after saying the majority of its taxes are paid in the US because that’s where its global headquarters are based and it makes the most R&D investment.
Under Australia’s new multinational tax anti-avoidance laws — implemented as part of the Organisation for Economic Cooperation and Development (OECD) recommendations stemming from its G20-commissioned base erosion and profit-shifting (BEPS) project — as of July 2016, companies operating in Australia that have an annual global income of more than AU$1 billion are required to lodge their general purpose financial statements to the ATO if they are not already doing so with the ASIC.
As a result, Google upped the amount of tax it paid for the 2014-15 financial year.
Google, along with fellow US tech giant Apple, has been accused of using Ireland’s lax taxation laws to avoid paying up for some time, with the European Commission ruling in August after a two-year investigation that Ireland should claim €13 billion in “illegal tax benefits” back from Apple alone.
The European Commission had found that Apple used two shell companies incorporated in Ireland to report all of its European profits to be taxed at a rate of less than 1 percent — and at one point at a taxation rate of only 0.005 percent — which constituted a breach of state aid rules, making the practice illegal.
In December, however, Ireland announced that it would be appealing the European Commission’s ruling to collect the €13 billion in taxes, saying the commission is infringing on Ireland’s sovereignty, and that it deliberately designed its taxation policies to attract foreign investors.