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French financial prosecutor went dark for a year to investigate on Google France for tax noncompliance

TechCrunch TechCrunch 30/05/2016 Romain Dillet

Google was caught by surprise. Last week, nearly a hundred employees of France’s equivalent of the IRS (Direction générale des finances) raided Google’s office in Paris for a tax noncompliance investigation. And French financial prosecutor Éliane Houlette told Europe 1 that her team had been secretly working on this raid for nearly a year. Google may be facing a $1.8 billion fine (€1.6 billion).

Houlette and her team have been a bit paranoid with this investigation. Given Google’s size and reach, the team has been extra cautious as Google couldn’t know about an upcoming raid in its office in Paris. You don’t want the company to start obfuscating files before you even have a chance to look at them.

That’s why most people at the DGF didn’t event know Houlette was getting serious about this investigation. Her team used the codename “Tulip” when talking about Google, referring to the flowers in the Netherlands.

“We’ve dealt [with this investigation] in complete secret given this company’s business,” Houlette told Europe 1. “In order to protect this secret, we decided that we would give another name to Google and never pronounce Google’s name — Tulip. And we’ve worked offline on this investigation for nearly a year. We used one computer, but only as a word processor.”

The end result is terabytes of data. It’s going to take months, or even years to process all this data, according to Houlette.

Now, many have asked whether France was willing to do a tax deal like in the U.K. French finance minister Michel Sapin told Reuters that there won’t be any deal. Houlette went even further and said that France’s legislation doesn’t work this way and there’s no way the French government could make a deal with Google.

So it leaves one possibility — a trial. Things could get ugly as this trial could go on and on for years. It would hurt France’s image when it comes to doing business in France. Houlette is also aware of that, so let’s see if the financial prosecutor can find an alternative that won’t be a deal nor a trial.

France’s investigation against Google’s tax schemes started in 2011. According to Google, the company doesn’t do much business in France. It has an office and a marketing team, but no sales team. That’s why most of Google France’s revenue goes to Google’s European HQ in Ireland and the company doesn’t pay much tax in France.

Then, Google sends most of Google Ireland Limited’s money to Google Netherlands Holdings BV, so that this other subsidiary can send the money to Google Ireland Holdings.

Despite the name, Google Ireland Holdings’ cost center is in Bermuda and is called Google Bermuda Unlimited. And that’s how you end up making money in France while keeping your bank account in Bermuda, where corporate tax doesn’t even exist.

Many European companies use more or less the same process to lower tax rates — and it’s legal. But the main issue with Google in France is that the DGF thinks that Google is doing more than just marketing in France. Some Irish contracts could be French and could be subject to French taxes. Hence the investigation.

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