A French court has ruled against the country’s own tax authority, and decided that Google need not pay a €1.11B ($1.27B) tax bill. Although the ruling so far applies only to Google and only in France, it sets a precedent that could influence other cases in Europe.
In particular, the case has striking similarities to that involving Apple …
In Google’s case, the company argued that when it sold ads to French companies for display on Google.fr, it was actually making those sales in Ireland, and its French company merely provided marketing and logistical support services.
The French government disagreed, saying that when Google sold ads to French companies, that revenue was earned in France, and was subjected to taxes there. Accordingly, it sent the company a bill for almost $1.3B, covering ads sold in the country between 2005 and 2010, down from an earlier demand for €1.6B.
Apple relies on essentially the same argument as Google, funnelling profits from sales made in Apple Stores throughout Europe to its European HQ in Ireland. Doing so has seen the company come under fire in two ways.
First, at least one European country has taken the same stand against Apple as France did against Google. The Italian government demanded that Apple pay taxes in Italy on sales made in the 16 Apple Stores within the country. Apple chose not to fight the case there, and paid the full €318M ($347M) claimed by the Italian tax office.
Second, Apple has been attacked for paying a very low rate of tax to the Irish government. The European Commission of course last year ruled that the agreement between Apple and the Irish government was illegal, and demanded that Ireland recover €13B ($13.7B) of unpaid tax. Both the Irish government and Apple are separately appealing that ruling, and is possible that the French case may play a role in guiding the outcome of those appeals.
While a precedent set in one country does not directly apply to others, all European Union countries are supposed to abide by the same harmonized tax rules for companies doing business there. This means that courts in other European countries may view the ruling as having broader effect.
Of course, things may change. The WSJ reports that although the court sided with Google, the French government was considering an appeal.
In a decision issued Wednesday afternoon, Paris’s administrative tribunal ruled that Google’s lucrative advertising-sales business had no taxable presence in France—absolving it of income or sales taxes on advertising income from French clients […]
French Budget Minister Gérald Darmanin said that the tax authority is analyzing the decision with a view to appealing it, noting “the significant role of French employees in Google’s commercial activity in France.”
A subsequent Reuters report confirms that it will indeed appeal.
“We will appeal this judgment in defence of the interests of the state,” budget minister Gerald Darmanin said.