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November 21, 2012

France and Google Talk Taxes, Budget Minister Has 'Convincing' Proof

By Steve Anderson, Contributing TMCnet Writer

France has been on the prowl for taxes of late, hitting some online ventures in the pocketbook. But recently, the French government took on quite the target indeed, going after no less than Google (News - Alert) with not only a major-scale tax audit, but a demand for the payment of back taxes.

Now, the French government is pressing the attack, with its budget minister saying yesterday that "convincing" proof to back up the claims is on hand and ready to be leveled against Google.

Just what that "convincing" proof is, of course – or if it's just an obfuscation on the part of the French government – is unknown. Jerome Cahuzac with the budget ministry in France recently mentioned that the evidence "shows a business activity based in France that is uncontestable."

Google clearly disagrees, harshly contesting it, but that's the kind of thing that should be expected, given the amounts involved.

A satirical weekly publication known as Le Canard Enchaine suggested – though they didn't actually cite sources – that the amount involved could be as much a 1.7 billion Euros ($2.177 billion U.S.), and that's no small amount – even for a company like Google.

Assuming Le Canard Enchaine is even partially right, that represents some very big money, and explains why Google has been under investigation by the French tax authority since June 30 of last year. Google's three Parisian offices were searched, and both computers and documents seized by French tax officials. Google tried to get the results of those searches thrown out of legal consideration, suggesting tax authorities "misrepresented themselves,” but the courts didn't agree with Google's assessment and the investigation proceeded.

The issue seems to come down to an issue of advertising, which is one of Google's main products. Specifically, the French tax authorities are investigating to see if Google's practices of charging French advertisers from its European headquarters – which happens to be in Ireland – led Google to underpay taxes in France.

While European Union rules allow member nations to freely sell between themselves, France is suggesting that sufficient work was done on French soil that Google's tax burden should be more French than Irish.

The French budget ministry thinks it has the proof necessary to show that's the case.

Google France, for its part, reported sales of 68.7 million Euros ($87.98 million U.S.), and in turn paid 2 million Euros ($2.56 million U.S.) on profits of 4.4 million Euros ($5.635 million U.S.), but the French government is hunting harder than ever. Recently, it confronted Amazon over its own tax liabilities, laying a bill for $252 million on the online firm. This is likely part of what's being called a larger effort staged by the French government – and its German and British counterparts – to get more tax dollars from industries, seeking to tax at both the national and international levels.

Boosting tax burdens on businesses is something of a risky game. Upping the tax numbers too far can lead businesses to pull out of a market altogether, and that in turn can take precious jobs right along with the companies in question.

The last thing any major market needs right now is higher unemployment figures, and if France leans too hard on Google, Google France may not stick around much longer.

There are many benefits to globalization, but if tax issues make it too difficult to do business, those benefits may well go out the door, and so too may the company enjoying them.

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Edited by Braden Becker
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