Pact to Pay France $1.1 Billion Is Set -- WSJ
September 13 2019 - 3:02AM
Dow Jones News
By Sam Schechner
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 13, 2019).
PARIS -- Google is paying more than $1 billion in fines and back
taxes to settle a pair of tax disputes in France, where it has
faced years of investigations into whether it has properly declared
all of its activity in the country.
France's financial prosecutor said Thursday that a court has
approved a EUR500 million ($553 million) fine the Alphabet Inc.
subsidiary agreed to in a settlement of a tax-related criminal
probe. The prosecutor has been investigating Google for aggravated
tax evasion since 2015, after a complaint from the French tax
authority related to the four previous years.
Google confirmed the agreement, and said that said it had also
previously agreed to pay EUR465 million in back taxes to France's
tax authority, which has for years argued that Google was
underpaying.
The settlements, which prosecutors said were related, were a
surprise because a French court two years ago threw out an earlier
EUR1.11 billion tax bill that France's tax authority had issued the
company for the years from 2005 to 2010. In that bill, the tax
authority had alleged that Google had declared too little revenue
and profit in France.
But Google says it wanted to settle its pending cases and move
forward. "We have now settled tax and related disputes in France
that have persisted for many years," a Google spokesman said,
adding that the prior settlement with the French tax authority was
already substantially reflected in Alphabet's prior financial
results.
The settlements amount to 2.9% of Alphabet's revenue last
quarter. France has started levying a new tax against large
companies with significant digital revenue in the country,
retroactive to the start of 2019. France implemented the tax over
strong objections from the U.S., which has opened an investigation
that could eventually lead to retaliatory tariffs.
France and other countries considering similar taxes, stretching
from the U.K. to South Korea, contend that companies like Google
have long declared too little profit in the countries where they do
business. France's new tax will charge 3% on certain types of
digital revenue in the country from companies with more than EUR750
million in annual global revenue, including at least EUR25 million
in France.
France's finance minister said the tax is an imperfect solution
for capturing profit he says should have been declared until
countries can agree on new rules on how to allocate corporate
profit globally. Several countries, including France and the U.S.,
are involved in those talks, which negotiators aim to result in
initial agreement by the beginning of 2020.
The push to change the global tax system stems in part from
cases like those Google is settling in France. At issue are tax
structures, common in Europe, where companies book most or all of
their client revenue at a headquarters in one EU country while
reimbursing units in other countries for their costs for marketing,
support and other ancillary functions. That leaves little taxable
profit in the countries in which their clients live and do
business.
French authorities have argued that Google, which collects most
of its revenue from European advertising clients at its Irish unit,
Google Ireland Ltd., actually does more business in France than
that structure implies. Specifically, they said Google executives
negotiate advertising deals in Paris and that such activity gives
the Irish unit -- which generates more profit -- a permanent
establishment, or taxable presence, in France.
In 2016, French police raided Google's Paris office as part of
the financial prosecutor's probe to determine "whether Google
Ireland Ltd., has a 'permanent establishment' in France, and in not
declaring some of its activity in French territory hasn't fulfilled
its tax obligations," the prosecutors said at the time.
The French deal isn't the first time Google has settled its tax
disputes in Europe. The company in 2016 agreed to pay GBP130
million ($160 million) as part of a settlement with the U.K.'s tax
authority for the years 2005 to 2015.
The next year, Google agreed to pay around EUR306 million to
Italian tax authorities, mainly for the years between 2009 and
2015.
Write to Sam Schechner at sam.schechner@wsj.com
(END) Dow Jones Newswires
September 13, 2019 02:47 ET (06:47 GMT)
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