Why did France raid Google Paris?

If you want to know why French authorities conducted a dramatic, early morning raid of Google’s Paris, France, offices, you need to look at Ireland.

On Tuesday, French authorities sent in dozens of tax officials who searched Google’s offices at 8 Rue de Londres, Paris, for evidence of tax fraud. The surprise raid was conducted as part of an ongoing investigation, launched almost a year ago, of whether or not Google owes France back taxes (1.6b Euros, by one estimate), and if it is actively trying to evade French tax law.

Of course, Google is not. Nor are the dozens of other U.S. and other multi-national corporations that have set up shop in Ireland, where the corporate tax rate is just 12.5%, and then built so-called satellite offices in other European Nations. Why all the corporate gaming? France and UK tax rates are typically more than double Ireland’s: France is 33.33% and the UK is 20%.

“Lots of multinationals locate in Dublin, so Google is not alone in doing this. All for similar reasons. They are taking advantage of lower Irish tax rates set up to attract business to Dublin, and it’s worked well for the Irish. And for most of the companies too,” said Evan Rudowski, managing partner for Atlantic Leap, a London-based firm that advises digital companies on how they can expand internationally. Rudowski was also one of the first Silicon Valley executives to, in 1998, set up shop for Excite in Europe.

Google Dublin Paris

Google’s Dublin headquarters are on the left and Google’s Paris offices are on the right.

Image: Google Streetview

Like many other companies expanding into Europe, Google lists its EU headquarters as being in Dublin, Ireland (Apple’s EU headquarters are also in Dublin). On Google Street view, company employees line the streets outside the facility. By contrast, Google’s Paris office is behind a gate with scant visible “Google” signage. There is some Google colored seating in front of the classically architected edifice.

Satellite offices

There’s good reason for that low-key approach. In order for Google and other foreign businesses to avoid paying French corporate taxes (they could still pay local taxes on local profits), the offices have to be seen as impermanent and, apparently, having a very specific use.

According to the Organization for Economic Co-Operation and Development and its recommendations for defining a “permanent establishment” for the purposes of applying tax convention, a fixed business would exclude those places of business built “solely for the purpose of advertising or for the supply of information or for scientific research or for the servicing of a patent or a know-how contract, if such activities have a preparatory or auxiliary character.”

There are few details on exactly what Google does in its Paris offices, which opened in 2011, but this video produced by Google certainly makes it clear that engineers based there are working on everything from Chrome and YouTube to big data.

Practically speaking, if you are trying to do business with Google, you’re not flying to Dublin for a meeting — you’re going to their London office or their Paris office.

This arrangement, where Google’s Dublin-based HQ shoulders the brunt of the corporate tax bill while other European offices are designed to be less “permanent,” is “an aggressive arrangement,” Rudowski said.

“It’s aggressive in the sense of making the argument that their various offices are just satellites of Dublin in order to enable them to take advantage of lower Irish taxation. Practically speaking, if you are trying to do business with Google, you’re not flying to Dublin for a meeting — you’re going to their London office or their Paris office. They are planning a huge new HQ at Kings Cross in London — is that just a satellite office of Dublin?” he continued.

If France can prove that Google is doing more than just advertising, research and contracts, it could potentially force the company to pay billions of Euros in back taxes.

There is precedent for France’s claims. Earlier this year, Google was forced to pay €130 million (almost $145 million) to British tax authorities. It was, apparently, a very good deal for Google and one that France has sworn not to repeat.

Why the raid?

The need to show what Google really does at 8 Rue de Londres may be the reason France felt the need to send in so many tax officials to see first-hand what Google was up to.

Even so, couldn’t France have simply requested documentation? Doesn’t a raid imply that Google is actively trying to hide something?

Rudowski, though, said it’s really all about timing. French President Francois Hollande’s popularity is at a nadir.

“Hollande needs to think about reelection and there is no incentive for him to look the other way on this — it’s politically smart for him to make a show of cracking down on this,” Rudowski said.

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Article source: http://mashable.com/2016/05/24/google-paris-raid-analysis/

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