French authorities conducted a raid on Google's headquarters in Paris Tuesday as part of a tax evasion investigation opened last June that could affect other US companies operating in Europe.
"The investigation aims to verify whether Google Ireland Ltd. has a permanent base in France and if, by not declaring parts of its activities carried out in France, it failed its fiscal obligations, including on corporate tax and value added tax," the prosecutor's office said in statement provided to Reuters.
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Google's European headquarters is based in Dublin, Ireland, and the company's present tax structure allows it to pay taxes in one European country while avoiding local taxes elsewhere. French authorities suspect Google has evaded taxes by failing to report its financial activities in the country.
For Google, the raid may evoke a sense of déjà vu: French tax authorities previously raided Google's Paris office in June 2011.
The Financial Times (paywall article) reported that Google paid €5 million in corporate tax in France in 2014, a mere 2% of its €225.4 million ($252 million US) in local revenue that year. Google Ireland paid €28.6 million ($32 million) in corporate taxes in 2014, with €18.3 billion ($20.4 billion) in revenue, according to The Independent.
Last year, Ireland had a 12.5% corporate tax rate, according to the Tax Foundation. During the same period, the US had a corporate tax rate of 39%, the third highest in the world, while France's corporate tax rate was 34.4%.
French tax authorities have been unhappy with Google's Irish tax arrangement for years, but Google insists it has behaved lawfully.
"We comply with the tax law in France, as in every other country in which we operate," a company spokesperson said in an emailed statement. "We are cooperating fully with the authorities in Paris to answer their questions, as always."
France is reportedly seeking €1.6 billion ($1.8 billion) in unpaid taxes.
Other countries in Europe have been trying to extract more taxes from US companies. Italy last year won a €318 million ($355 million) tax settlement from Apple. In January 2016, the UK reached a deal with Google to pay £130 million ($191 million) in back taxes following a six-year investigation.
In March, the European Commission asked the Irish Finance Ministry for further information on Apple's tax arrangements in the country. Bloomberg has estimated that Apple's potential tax liability in Europe could amount to $8 billion.
The French investigation compounds Google's troubles in Europe, where authorities have challenged the company's Android and search businesses on antitrust grounds. European data rules have also become more burdensome for Google, forcing it to remove data from its search index under Europe's "right to be forgotten."