PARIS – A storm is brewing in Europe as nations try to force Internet powerhouses like Google and Amazon to pay more in taxes.
Governments, hungry for money to prop up their struggling economies, are accusing the technology giants of incorporating themselves in low-tax countries so they can avoid paying hundreds of millions of dollars to countries such as Germany, Britain and France – where most of their European income is derived.
In Britain on Monday, a lawmaker pushing to tighten laws said the multi- nationals’ ability to escape corporate taxes “is outrageous and an insult to British businesses and individuals who pay their fair share.”
According to court documents, French authorities raided Google’s offices in Paris over the summer and seized documents in a tax dispute. More recently, according to a published report, the French government presented Google with a $2.18 billion tax bill; Amazon acknowledged one for $252 million. Facebook is also in the line of fire.
In Italy, the undersecretary of the Economy Ministry revealed during questioning in parliament Wednesday that the tax police inspected Google’s books, adding that it found millions in undeclared income and unpaid sales tax.
The politicians are cracking down on U.S.-based multinational companies such as Google, Apple, Facebook and Amazon, claiming they pay paying little or no tax in Europe in spite of generating billions in revenue there.
But there is nothing illegal to the multinationals’ actions. Thanks to the way the European Union is run, companies operating in Europe can base themselves in any of the 27 member countries, allowing them to take advantage of a particular country’s low tax rates.
By setting up overseas headquarters in low-tax jurisdictions such as Ireland or Luxembourg and shifting the profits out of the countries they’ve done business in, the online companies have managed to keep down both sales taxes and corporate income taxes on their overseas income.
Google’s British chief, Matt Brittin, said last week that the company “plays by the rules set by politicians.”
The fact that the methods are legal hasn’t stopped resentment from brewing among governments, other brick-and-mortar businesses, and households feeling ever-higher tax burdens.
The British Parliament’s public accounts committee said Amazon, by accounting for the profits made in the U.K. elsewhere in the EU, paid $2.9 million in British tax in 2011, on revenue of $333 million. In Italy, the government said tax police determined Google had undeclared earnings of $311 million from 2002 to 2006 and had not paid value added tax of $154.5 million in the period.
Philippe Marini, the French senator who leads the country’s finance commission, estimated France is missing out on some $2 billion in taxes from Google, Apple, Facebook and Amazon. And, Marini noted, that amount would pale in comparison to what they likely owe Germany and Britain, where sales figures are higher.
“The ability not to pay tax on income that’s booked offshore is now the single biggest corporate tax loophole in the code,” said Reuven Avi-Yonah, an international tax expert at the University of Michigan.
The amounts booked offshore are considerable: For Apple, 61 percent of revenues come from outside the U.S. – and fully a quarter of that came from Europe alone. “Apple doesn’t have a single store in Ireland,” Avi-Yonah said.
In a filing to the U.S. Securities and Exchange Commission, Apple said it had set aside $713 million for its 2012 foreign tax bill on overseas pretax earnings of $36.8 billion – a provision of almost 2 percent of what it made.
Google’s overseas revenues accounted for 54 percent of its total, including more than 10 percent in Britain alone. Meanwhile, Google is tackling government action on another front. German politicians are considering imposing a so-called Google Tax – a levy that would require search engines to pay each time they link to media content like newspaper articles or photographs.