AUDACITY

Does Google Really Think It Doesn’t Have to Pay Taxes in Europe?

The tech giant, like several other multinational companies across Europe, has exploited tax loopholes that could eventually trip them up.

05.24.16 5:29 PM ET

ROME — Last February, when Google’s European Chief Matt Brittin was asked by a UK public accounts commission what his salary was, he said he couldn’t recall. “I don’t have that figure in front of me,” he told Meg Hiller, the committee chairman, in a televised hearing. “You don’t know what you get paid, Mr. Brittin?” she demanded. After Brittin, who also heads Google’s operations in the Middle East and Africa, hemmed and hawed, she let it go, making the point to the executive that the rest of the taxpayers in the UK “live in a very different world than you do.”

Indeed, it would seem that being cagey about the bottom line is a Google skill set that has been employed by a number of multinational companies all across Europe. Nowhere was that more apparent than in Paris on Tuesday morning, where more than 100 tax officials with the French internal revenue service known as the Direction Générale des Finances stormed Google’s Paris office under police guard to find out just how much Google makes in France. They were so concerned that Google execs would hide their accountancy that they even used clandestine communication means to make the plans, fearful that someone might tip the search engine giant.

According to French media, Google faces charges of tax evasion and money laundering and fines of up to $1.8 billion. Google did not respond to calls for a comment on the matter.

This is not the first time Google has been in hot water over its taxes in Europe. Last January, the Italian financial police launched a similar probe, estimating that the company owed Italy some $247.5 million in unpaid taxes and a further $225 million on unclaimed royalties earned in the country over the past five years. According to Italian officials, Google “failed to disclose €600 million worth of royalties.”  

The French financial fiasco stems from a testy debate between Google and the United Kingdom tax authorities that went on for more than six years and ended with an audit settlement on back taxes earlier this year. Google had to pay around $190 million in back taxes, which boils down to a corporate tax rate of less than 18 percent (and by some estimates based on its estimated profits just 2.4 percent), far lower than what most British businesses pay the Crown.  (The figure is about ten times less than what the French are apparently hoping to get the search engine giant to pay.)

Google’s European headquarters is located in Dublin, Ireland, which has the lowest corporate tax rates of any European nation, and, perhaps not surprisingly, where multinational companies like Apple, Facebook, and Dell keep their European headquarters, too. What makes Google unique is that its holding company is reportedly actually in Bermuda where there is no corporate income tax at all. Google is not under investigation regarding its substantial American tax bills, which is not being called into question.

But Dublin is apparently where all of Google’s European profits (mostly from advertising) are made, despite operational centers in many other countries, including Italy and France. Last January, after Google settled with the UK, the European Commission’s regulator said it was considering opening a pan-European investigation after receiving a tax complaint about the settlement and questions about just which countries Google is reporting its profits.  

Margrethe Vestager, the European Union’s Competition Commissioner, told BBC Radio that she couldn’t look back on the settlement Google reached with the UK tax authorities. But, she implied, if there was something new to investigate she’d certainly look into it. “If we find that there is something to be concerned about—if someone writes to us and says, well, this is maybe not as it should be—then we will take a look,” she said.

Google is certainly not the only multinational company operating in Europe that is under scrutiny for creative accounting when it comes to taxes. According to a report in Forbes, Apple is being investigated for back taxes of about $8 billion and Starbucks could face fines and back taxes of more than $20 million. Even IKEA, which is a European company, is being probed for more than $1 billion worth of tax discrepancies by creatively moving money to a subsidiary, according to the Forbes expose.

Part of Google’s trouble stems from a pan-European financial system that doesn’t exactly demand transparency. Late last January, 31 European nations signed an agreement set forth by the Organization of Economic Cooperation and Development (OECD) that mandated that all European nations share vital tax information and that all multinational companies are required to disclose how much tax and for what profits they pay in each European country. And even though the initial agreement was signed, it has not yet been implemented, meaning companies like Google still may be allowed to beat a very flawed system.