French investigators have raided Google’s Paris headquarters, saying the company is now under investigation for aggravated financial fraud and organised money laundering.
In a major escalation of France’s long-running enquiry into Google’s tax affairs, magistrates revealed on Tuesday that the software giant is suspected of evading taxes by failing to declare the full extent of its activities in the country.
Prosecutors said they want to establish whether the Irish company through which Google funnels the majority of its European revenues does in fact control a “permanent establishment” in France.
Google maintains that its large offices in Paris, London and other European capitals are not fully fledged businesses, but operate as mere satellites of its international headquarters in Dublin, providing back-office services such as marketing.
The company routes most of its non-US revenue from activities such as advertising through Dublin, where the 12.5% corporation tax rate is low by European standards. The structure allows the company to avoid both European and US taxes on the income.
Google released a statement saying: “We comply with French law and are cooperating fully with the authorities to answer their questions.”
Investigators arrived at the tech firm’s offices in central Paris at 5am local time, with reports of around 100 investigators and five magistrates involved.
The state financial prosecutor (PNF) said in a statement: “These searches form part of a preliminary enquiry opened on 16 June 2015 relating to acts of aggravated financial fraud and organised laundering of aggravated financial fraud, following a complaint from the French tax authorities.”
The PNF confirmed it had led the operation, assisted by the central office for the fight against corruption and financial and tax crimes (OCLCIFF) alongside 25 computing experts.
“The enquiry is focused on verifying whether the company Google Ireland Ltd controls a permanent establishment in France and if, by not declaring a part of the activities conducted on French territory, it has failed in its fiscal obligations, notably regarding taxes on companies and value-added tax.”
France, Britain and other countries have long complained about the way Google, Apple, Yahoo! and other technology companies generate profits in their countries but funnel these offshore.
In February, it emerged that France was seeking €1.6bn (£1.2bn) in back-taxes from Google, which has been criticised for its use of aggressive tax optimisation techniques.
In January, Google agreed to pay £130m in back-taxes to the UK Treasury, but the announcement triggered uproar from tax campaigners and opposition MPs, because it meant that HM Revenue and Customs had effectively allowed the firm to continue routing its UK sales through Ireland.
The French tax office, in seeking back-taxes from Google, has pointedly refused to strike a deal with the US internet giant as the UK did. Earlier this year, the finance minister, Michel Sapin, said: “The French tax authorities do not negotiate on the amount of tax.”
Google has insisted it conforms to tax law in every country in which it operates.
The company, according to recent reports, employs more than 700 staff in France. Google reported revenues of €216m for its French operation in 2014, paying €5m in tax. However, advertising researchers put its actual revenues at about €1.7bn for that year.
Google’s troubles with the French tax authorities began with a series of raids in 2011, when several searches of its premises in Paris were conducted in the course of an inquiry into transfer pricing.
Used by multinationals to shelter profits generated in major markets, where tax rates tend to be higher, transfer pricing works by shunting money into lower tax jurisdictions.
Two years ago, Google notified the US stockmarket regulator that it was subject to a tax inquiry.
The firm declared: “In March 2014, we received a tax assessment from the French tax authorities. We believe an adequate provision has been made and it is more likely than not that our tax position will be sustained. However, it is reasonably possible that resolution with the French tax authorities could result in an adjustment to our tax position.”
Unconfirmed reports at the time suggested the group had received demands for €500m and even €1bn in unpaid taxes.
France has clamped down on aggressive tax optimisation techniques by multinational companies, and – looking to shore up fragile state accounts – has launched a campaign to encourage taxpayers to come clean on previously undeclared assets held abroad. The crackdown has yielded €12.2bn in 2015, up almost a fifth from the previous year.
Big multinationals have not been spared. French authorities recently sent McDonald’s France a €300m bill for unpaid taxes on profits believed to have been funnelled through Luxembourg and Switzerland, the business magazine L’Expansion reported last month.