Tax authorities in France raided Google's Paris offices May 24 in a dramatic escalation of an ongoing investigation of the company's tax payment practices in the country.
The Guardian described the raids as taking place in the early morning and involving some 100 investigators, including 25 IT specialists and five magistrates.
The purpose of the investigation is to verify whether Google Ireland Ltd. has a permanent base in France and, if so, whether the company failed to fulfill its tax obligations in the country, The Guardian said, quoting a statement from France's financial prosecutor PNF (Parquet National Financier).
A Google spokesman today said the company is fully cooperating with authorities in Paris. "We comply with the tax law in France, as in every other country in which we operate," the spokesman said in an emailed statement.
Google currently attributes all of its European revenues to its operation in Ireland because of the more favorable tax rates in the country, compared with France and other EU nations. Tax authorities in France and elsewhere have claimed that the structure has allowed Google—and other large multinationals—to get away with relatively little taxes on revenues made in their countries.
France's finance ministry has previously noted its intention of sticking Google with a bill for nearly $1.8 billion on back taxes allegedly owed by the company on revenues earned in the country over the past several years.
Tax authorities in the United Kingdom have already collected more than £130 million from Google under an agreement aimed at settling back taxes on revenues over the past 10 years. Several U.K. lawmakers have railed against the agreement claiming that the settlement amount is way too low in comparison to Google's revenues in the country.
French authorities have ruled out a similar agreement in their country and have indicated that they will make Google pay the entire amount of any back taxes owed by the company.
The May 24 raid is designed to verify whether Google's offices in France were involved in finalizing any contracts with local clients, Reuters said in a report from Paris. In that case, the company would be obliged to report those revenues locally and pay taxes on it.
If Google is found guilty of aggravated financial fraud and organized money laundering, for which the company is being investigated, it will hurt financially, said Ezra Gottheil, an analyst at Technology Business Research.
A large fine would also likely negatively affect Google's global reputation, he said. "Some users will look for alternative services. I don't know what is available in the EU, but Microsoft is the obvious beneficiary," Gottheil said.
However, perceptions of Microsoft may not be any better, he added. "I don't think there is any question that many people in Europe and in European governments resent the way that Google dominates the online search market and plays a large role in the smartphone market," Gottheil said.
In fact, Google business practices on both those fronts are already being investigated in the EU. The company could end up facing huge fines if investigators find it has been acting in an anti-competitive manner.
"Only a large fine would affect Google's financial position, and even that, would be a one-time event," Gottheil said. "Until and unless a strong competitor emerges, however, Google will continue to profit from its business in the EU."