Google May Be $1 Billion Behind In Tax Payments To France

An anonymous reader writes "Ars Technica reports, 'Technology giant Google has been delinquent on its tax payments in France for the past few years, to the tune of more than $1 billion in missed payments, and it now may be hit with a sizable tax penalty by the French government.' Google asserts that it has operated within the law in France, but the French government has reason to believe that in order to avoid French taxes, Google has been passing off some of its business contracts as Irish rather than French."

Comments

$1B? That's nothing!

[Anonymous Coward]

Ever heard of the Double Irish and a Dutch sandwich?
The City of London has established a world-spanning network of tax heaven states, mostly consisting of former parts of the english empire. Big corporations use this system to not pay taxes, and the sums involved exceed 1$B by far.

Re:So few

[cheesybagel]

Google, Amazon, Apple escaping taxes and it starts to add up to real money.

Same tricks played in UK

[whoever57]

Google has played the same tricks in the UK. Google claims that the sales are made in Ireland, while employing many people in the UK whose job titles includes sales. I expect there are Google employees in France and UK (and most other European countries) who get sales commissions for sales "made" in the Ireland.

Re:Same tricks played in UK

[mlts]

In cases like this, I wonder about just moving to a VAT entirely and dispensing with income taxes.

In a perfect world where companies paid what they earned, an income tax would be better in theory, as consumption taxes tend to slow down purchasing and movement of money.

However, in the real world, we read all the time about the stashing of income. A VAT is better because it is a lot harder to get around (as of now... I'm sure there might be loopholes.)

tl;dr... Income can be hidden. Hiding that factory, Lear Jet, or Maybach, not so much.

Re:Same tricks played in UK

[jemmyw]

The problem with sales tax (VAT) is that it taxes the poor more than the rich because the poor tend to spend a greater proportion of their income. It is also quite a burden to administer for companies and government. It is also an inefficient tax for states with welfare - government gives you money and then you give a large portion of it back again.

I don't have a solution though, even though it is something I think about often. But it seems to me that what we really need is for some way to experiment with widely different tax regimes. But what country is going to be willing to suffer negative consequences of doing so?

Re:So few

[Anonymous Coward]

If they don't like the laws the company is free to not operate in the country. If they choose to operate there they must follow the law. I have no sympathy for them, they knew what the deal was when they stablished there.

How they get away with it (for now)

[Anonymous Brave Guy]

Giving the benefit of the doubt, and assuming this a genuine question and not a troll...

The problem is that it is surprisingly difficult to objectively distinguish between legitimate activities in an international business that operates in under multiple tax regimes and the activities which are "obviously" just tax avoidance.

It's hardly a secret that some businesses set up a legal entity that is little more than an administrative formality in a country with a very low corporation tax rate, and then their legal entities in other countries with higher corporation taxes pay some sort of fees/royalties to their low tax counterpart, thus shifting the tax burden and saving them money (as well as changing which country is the beneficiary of the corporation tax they do pay).

The trouble is that the same rules about international payments and taxes have to cover businesses that really do operate, for example, a crucial R&D lab in one country (perhaps with a good reason, such as having close ties to a good university nearby) but still sell the end product to customers internationally. More than that, you also have to allow for the fact that it might be two completely separate legal entities doing that, which may or may not be owned by some of the same interests. After all, if a business in one country spends a lot of time and money hiring smart people to design products, but then sells the IP rights to completely independent manufacturing businesses in other countries that make and sell the physical products, I don't think many people would argue that it's silly to have the money for the rights shifting across international borders back to the people who did the research, and for each individual company involved to pay the appropriate tax in their own country on the money they make in that country.

So where do you draw the line, and on what basis? After all, the businesses in question almost certainly do still pay substantial amounts of money to the countries where they really are selling things, such as sales, property and employment taxes. The "obvious" thing to do is to adjust the tax rates so corporation tax is universally low and more government revenue comes from these other forms of taxation that can't be so readily shifted, but that has a lot of knock-on effects for your entire national tax system, and it's also susceptible to various other kinds of manipulation unless there is a lot of international co-ordination to mitigate those dangers. And remember, the people who are making all this money typically have a lot more to spend on professional tax advice -- and get excellent returns on that investment -- than the governments in question have to spend on challenging them in extended tax-related lawsuits that will drag on for years at great cost to all concerned.

I think there is sufficient public opinion turning against the more egregious examples of corporate tax avoidance now that we really will see such international co-ordination starting to get results within the next few years. France is definitely not the only place concerned about this, at either government or guy-in-the-street level. But for now, the above is (a grossly simplified explanation of) how they get away with it, and why it's neither breaking any laws nor easy to make laws it would break without unintended and potentially very nasty side effects.

Re:So few

[Anonymous Brave Guy]

The problem is that they are following the laws in these countries. The governments have the legislative powers and have created tax systems that don't work under these conditions, but instead of fixing the problem, it's politically better PR to just blame the big organisations for having decent accountants.

In cases where that creates a hostile public feeling toward a company, that can be a surprisingly effective strategy -- certain businesses that operate in the UK have recently changed their accounting practices so they declare more taxable income in the UK -- but usually the amounts involved are relatively small, just enough to counter the bad press with a good soundbite about how many million they paid in tax last year -- and it doesn't really work on businesses that utterly dominate their industries and/or don't deal much with the average guy in the street anyway.

Sooner or later, these governments are going to have to get their act together and fix the broken system properly, but I suspect a lot of them are hoping the next election will come and go first so either they have some breathing room or it's someone else's problem.

Re:So few

[kesuki]

you didn't provide links verifying your points. without links it is too hard for the people who regularly get mod points to mod positive, because if you want a soap box on slashdot you should use their journal system. having read the definition of austerity measures it is clear that the usa is also using austerity measures... the world is a complex place, though.

"After the french government committed to economic suicide with austerity policies" http://en.wikipedia.org/wiki/Austerity In economics, austerity describes policies used by governments to reduce budget deficits during adverse economic conditions. These policies may include spending cuts, tax increases, or a mixture of the two.[1][2][3] Austerity policies may be attempts to demonstrate governments' fiscal discipline to their creditors and credit rating agencies by bringing revenues closer to expenditures; they may also be politically or ideologically driven.

In macroeconomics, reducing government deficits generally increases unemployment in the short run.[4] This increases safety net spending and reduces tax revenues, partially offsetting the austerity measures. Government spending contributes to gross domestic product (GDP), so reducing spending may result in a higher debt-to-GDP ratio, a key measure of the debt burden carried by a country and its citizens. Higher short-term deficit spending (stimulus) contributes to GDP growth particularly when consumers and businesses are unwilling or unable to spend. This is because crowding out (i.e., rising interest rates as government bids against business for a finite amount of savings, slowing the economy) is less of a factor in a downturn, as there may be a surplus of savings.[5][6]

Re:So few

[PopeRatzo]

In some countries, maybe there's some blame to be had for escaping taxes...but France is a whole other argument. I mean shit, 75% tax on the wealthiest has resulted in a lot of them just flat out leaving that country. It got so bad that their dear leader is now lobbying against his own tax plan; the same plan that put it there to begin with.

What do personal tax rates have to do with a corporation paying corporate taxes? There are no "75%" corporate taxes in France?

A corporation has a choice in whether or not to do business in a country. Google has no problem doing business in countries with regimes with a lot worse policies than a 75% top personal tax rate.

Re:So few

[Blaskowicz]

Dear leader? The French president is more like Ronald Reagan than Dear leader lately.
The 75% for income above one million euros (after deductions), was a symbolic measure as it concerns very few people and is still not applied. Just stuff waived around to get elected. Same president had pleaded to renogotiate the treaty on European Stability Mechanism, but didn't. Not a single point or comma was changed. Now this government will get us in the Great Transatlantic Market, or whatever it's called in which US corporations will dictate their laws to the countries and European Union, putting an end to national democracy.

Dear leader my ass! We're trapped, with a presidency and governnement that have "socialist" in name but are right-leaning collaborationists, more in the way of Tony Blair and Gehrard Schroeder.

Re:So few

[davester666]

Actually, it really appears that Google was blatantly NOT following the law.

Apple sells an iPhone and says X% of the value of it is for patents to be paid to an Irish company [or something like that], which is completely legal, even if it is also completely arbitrary [as Apple owns said patents] so they basically shift most profits out of the country. Everybody and their dog does this, Apple just headlines this because they are a relatively new company [vs say, petroleum companies] and they make highest amount of profit [or thereabouts] worldwide.

Google has a large office of employee's in France, that were involved with negotiating and signing advertising contracts with french companies, then claiming those contracts were actually signed IN IRELAND. This is the part that the tax collectors are taking issue with. To be legal and not have to pay taxes in France for those contracts, Google would basically have to close their french offices and get everyone to directly deal with their Irish division.

And I believe I saw a similar story about the UK also investigating Google doing this in the UK as well. And I'm sure all the other tax collection agencies in the EU have perked up their ears and started taking a look at this...

Re:So few

[Fuzzums]

"The government redrafted a proposed bill to levy a temporary 75% tax on earnings over 1 million Euros."
-- on earnings over 1 million Euros --

Personally I don't see the problem to contribute more to society if you earn that much money.

Re:So few

[Carewolf]

The US had a top marginal tax of 90% during it richest times of the last century. Why does it bother you so?

75% tax on rich does not exist

[aepervius]

I have no idea where you are getting that idea. http://en.wikipedia.org/wiki/T... there is a 60% tax on inheritance but only if you are a remote relative. There are high income tax on very high income (41% top), and there is a very low tax on wealth (around a 1% if you are millionaire , and atround 2% if youa re over 10* millionaire). As for the article it does not speak at all about a 75% tax. As for the article, it was really written by an american "France is famous for its generous social benefits, somewhat relaxed work ethic" there are country (like germany, Sweden) which have as generous and as relaxed "work ethic". In fact I suspect the usage of the word "ethic" here as being american prejudice only.

Re:75% tax on rich does not exist

[AlterEager]

"France is famous for its generous social benefits, somewhat relaxed work ethic"

That relaxed work ethic that gives France one of the highest GDP/hour worked in the world.