French police and prosecutors raided Google's Paris offices on Tuesday, intensifying a tax-fraud investigation amid accusations across Europe that Google fails to pay its fair share.
The search was part of a preliminary criminal investigation opened in June 2015 after French tax authorities lodged a complaint, according to a statement from the nation's financial prosecutor. The investigators are seeking to verify whether Google's Irish unit has permanent establishment in France and whether the firm failed to declare part of its revenue in France.
Prosecutors will probably go after Google's management in Ireland, according to Alain Frenkel, a tax lawyer in Paris. "That doesn't mean Google won't also face a recovery order from France's tax authorities," he said in a phone interview.
The raid came as Google, which is part of parent company Alphabet Inc., faces concerns in Europe over the small amount of tax it pays in the region. France has called on the company to pay back taxes of about $1.8 billion.
While no one has been charged with any wrongdoing, French penalties for aggravated tax fraud have recently been ramped up. Convicted managers can potentially face as long as 7 years in jail and a $2.2 million fine.
Google said in a statement that it complies with French law and is "cooperating fully with the authorities to answer their questions." While French investigators delved into Google's tax affairs, Alphabet Chairman Eric Schmidt was speaking just a few hundred miles up the road at a conference in Amsterdam.
Two unmarked cars with police signs on the windshield were still parked outside Google's Paris office at 8 rue de Londres on Tuesday afternoon. The raids started about 5 a.m. Paris time, Le Parisien newspaper reported earlier, citing an unidentified source.
French tax officials first raided Google's Paris offices in 2011. The country's government has criticized Google for booking most of its sales to French customers through its Irish subsidiary. Irish corporation tax is just 12.5 percent compared with France's 33.3 percent rate. Last year, Google's French subsidiary reportedly paid just $5.57 million in French tax, despite sales to French customers that analysts have estimated were greater than $1.1 billion.
Google's European subsidiaries also pay hefty royalty payments to another Irish subsidiary that is physically located in Bermuda and which holds Google's international intellectual property licensing rights. This reduces the profitability of Google's European subsidiaries, which means they pay less tax.
Earlier this year Google reached a $190 million settlement with the U.K. government over an audit covering 10 years of accounts. Critics called the amount "derisory" and urged the European Union to examine the agreement.
The scrutiny of Google's tax affairs coincides with a separate EU clampdown into how some nations may be offering special deals to lure big companies.
EU regulators showed their resolve last year, ordering Belgium in January to recover about $780 million in illegal tax breaks to companies, including Anheuser-Busch InBev NV and BP Plc. Tech giants Apple Inc. and Amazon.com Inc. are still under investigation after the EU criticized their tax arrangements in Ireland and Luxembourg.
Information for this article was contributed by Jeremy Kahn and Gregory Viscusi of Bloomberg News.
Business on 05/25/2016