What really happened with Google’s taxFebruary 25, 2016 Tim WorstallTax13 CommentsSo I gave a short version. The long one is here. previousFrance can demand all it likesnextExpansionary fiscal contraction 13 thoughts on “What really happened with Google’s tax” Alex February 25, 2016 at 2:27 pm Except that the long version doesn’t really tell us very much except that HMRC decided that there was no PE in the UK. It doesn’t tell us about the nature of the agreements between the UK and Ireland or the work performed in the UK, or how they reached their determination. The position in France may be very different, even with almost exactly the same agreements and approximately the same tasks performed in France as the UK. French law is different on the treatment of commission arrangements and several PE exemptions in the UK-Irish treaty do not appear in the French treaty. It is probable that Google was simply relying on the nature of the commssionaire contract under French law to ensure that Google Ireland does not have a PE in France, and the French authorities disagree with that position. Stuck-Record February 25, 2016 at 7:09 pm Apologies for the dimwit question. I think I understand why there is a very small amount of tax owing in the UK, France, et cetera territories. But I confess I’m confused about why they don’t seem to pay tax in Ireland. I always thought that they ended up paying tax in the single European country that they were registered for corporation tax. Is that not the case? Is Ireland not that country, or is it the Netherlands? In which case, how much corporation tax to the actually pay in that base of operations? Or have I totally misunderstood? Ironman February 25, 2016 at 7:26 pm Alex As yoy are very keen to point out, the devil is on the detail. To that end: when you refer to those PE exemptions not appearing in the French treaty, to which French treaty are you referring? Ironman February 25, 2016 at 7:29 pm Tim A truly excellent piece. Thisnis not least because you highlight the full international scope for Google’s tax planning. As somebody once told me, bilateral avoidance is relatively straightforward; the key is to produce a decent multilateral structure. As Alex points out – or at least he certainly thinks he has – small details and variations in a jurisdiction can in certain circumstances make a big difference. Alex February 25, 2016 at 7:41 pm @Ironman: french-irish http://www.revenue.ie/en/practitioner/law/double/france.html Jim February 25, 2016 at 7:46 pm @Stuck record: it appears (from my layman’s reading of the link) that Google Ireland have to pay a big licence fee to a Dutch holding company for the right to sell their advertising on Google Inc’s websites. Thus their profits from advertising sales are significantly reduced as a result of this cost of business, and most of the profits are effectively transferred to the Netherlands, and from there to Bermuda it seems. Why Google Ireland can’t just pay Bermuda directly is unexplained. However it does mean that even if Google France is considered to have made taxable sales of Xbn euro worth of advertising in France, it would also have to pay this licence fee to Google Bermuda (via the Netherlands) and thus its profits on those sales would be massively lower than the French tax authorities claim. Alex February 25, 2016 at 11:10 pm @Jim: Google pays the royalty to Bermuda via the Netherlands because it is “treaty shopping”. Most countries impose a withholding tax on royalty payments to tax havens and other countries with which they do not have a double taxation treaty. The Netherlands is a notable exception. All EU countries do not impose withholdding taxes on royalty and interest payments to other EU countries, so Google and other multinationals can avoid all withholding taxes on their royalties paid by EU companies on IP held in tavens by licensing the IP from offshore to the Netherlands and sublicensing from the Netherlands to other EU countries. Jim February 26, 2016 at 10:53 am @Alex: thank you, that explains it well. Another question – if the French authorities declare that Xbn of sales are taxable in France, will Google France then get a big bill from the Dutch holding company for the royalties for the right to sell that advertising? Stuck-Record February 26, 2016 at 12:22 pm Thank you Jim and Alex. Still not sure I could explain it to my lefty friends who are convinced that Google doesn’t pay tax anywhere. Alex February 26, 2016 at 1:46 pm @Jim: I doubt it. The tax position wouldn’t normally affect the legal obligations under the agreements in place (unless there was a specific clause in the agreement to that effect and I can’t see why), or unless the French courts decided that the agreements had a different legal construction to their form (which would alter the tax position and hence the claim, but we don’t know their reasons). But in any event Google NL has already been paid all the royalties it was due to date. Jim February 26, 2016 at 2:10 pm Well, what about Google Ireland then? They’d have paid royalties on sales they no longer have. Surely they would be billing their subsidiary for the royalty that applies to those sales? Ironman February 26, 2016 at 2:41 pm Alex I’m sorry mate, which is he term that makes the French treaty so very different to all others? Alex February 26, 2016 at 3:38 pm @Jim: Google Ireland still have the royalties, but someone (either Google Ireland by virtue of a deemed permanent establishment) or Google France (by however the French deem that the French tax law operates) is liable for the tax. At the moment, I presume that the French tax authorities do not know about the roayalties or other expenses incurred by Google Ireland. They just know that Google France has filed a tax return saying that it has received X hundred million of commission on Y billion of sales and incurred Z hundred million of costs in France. The French fisc then says, that Y billion of income less the X hundred million is taxable in France. Google France can dispute this, and they may win, but if they lose Google Ireland can then say, OK but we need to attribute our share of the costs in generating those profits and also an allocation of the royalty we pay to Google NL. The French fisc would then probably agree an appropriate allocation of staff costs, but on the royalty side they could (a) say OK, we accept that (b) say we will allow no more than would be paid to a third party or (c) nothing to do with France and disallow the lot. Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.