Google, the multibillion-dollar empire, has become the most popular search engine in the world over the last two decades. In more than one occasion it surpassed Apple as “the world’s most valuable company*” and since 2006 has been recognized as a verb by the Oxford and Mariam-Webster dictionary.

Google’s significant global presence also leads to the company’s constant quest, just like many multinational groups, to escape taxation. This was the precise result from a French court ruling on July 12, 2017, when it determined that the tech giant did not have enough presence in the country to justify collection of back taxes on advertising. The court’s decision, if not appealed, will potentially generate $1.28 billion tax-savings for the company.

According to Fortune and the New York Times, French authorities argued that for a period of five years (2005 – 2010) Google Ireland Limited was routing French advertising sales through Ireland in order to avoid paying taxes in France. The French Government took the position that such deviation was purely for the avoidance of value-added taxes, which would have been due in France for the sale of the ads.

The French government claimed that the company had a permanent business in the country with approximately 700 employees, many in commercial roles, performing all sales locally, and only the contracts went through the Irish division (Ireland is the new multinational’s paradise in the Old Continent, given the low corporate tax rates). However, this wasn’t enough to make Google pay, since the paperwork was properly filed and, hence, there were no grounds for infringement. As such, the court ruled that there was no infringement from Google and nothing was owed to the French government.

According to a report by Global Search Engine Marketing in 2011, approximately 96% of France’s online population use Google, and France currently represents 8.9% of internet users in Europe (see Internet World Stats [2]). Nonetheless, a company’s popularity, control of market share or even physical presence in a country through a division or subsidiary doesn’t necessarily affect or influence tax regulation. This has been a strategy that has worked well for Google, or the “Google’s tax scheme” as published in a Bloomberg article highlighting how the company’s foreign tax rate is extremely low, as calculated through the U.S. Securities and Exchange Commission [5].

Google’s tax strategy seems to be creating legal troubles for the company, just last year it settled for $168 million in back taxes with the U.K. and, in early 2017, it agreed to pay Italian authorities $336 million, also back in taxes, for the operations of 13 years in that country. Google is not alone in the game, as more cases continue to arise in Europe, such as Apple’s controversy in Ireland a few years ago, and most recently, Amazon was ordered by the EU to pay $294 million to Luxembourg over “illegal tax advantage” in the country.

*Technically is Alphabet, Google’s parent company.

Sources:

[1] http://ptgmedia.pearsoncmg.com/images/9780789747884/supplements/9780789747884_appC.pdf

[2] http://www.internetworldstats.com/stats4.htm

[3] http://fortune.com/2017/07/12/google-taxes-france-ireland/

[4] https://www.nytimes.com/2017/07/12/business/13google.html

[5] https://www.bloomberg.com/view/articles/2017-07-13/france-shouldn-t-let-google-get-off-tax-free