Google has narrowly avoided a massive €1.12bn ($1.28bn, £990m) back-tax bill for earnings in France, thanks to not setting up an office in Paris.
The search engine giant underpaid taxes on its income in France for five years, according to the authorities who sued the American giant's European's subsidiary, based in Dublin, to get its due.
But despite a six-year court battle, an administrative court in Paris decided Wednesday that Google's presence in the country was not sufficient for the fine to be held against the company.
Google does not have a permanent office in France and even though it supplied ads specifically to French customers on behalf of other companies, Google France was not in a position to legally oblige the Irish company to hand over the money, the court decided.
Google has 700 employees in France, but advertising contracts are sold through Google Ireland where the company – and many other tech firms – enjoy special low tax rates. However Google France does not have the people or technological ability to handle all the advertising itself, and so was not delivering them autonomously, the Parisian court decided. In 2015, Google paid just €6.7m in corporate taxes in France.
The decision is a huge victory for Google and will be celebrated by other large US tech companies that have also set up elaborate corporate structures to avoid paying taxes in European countries.
The issue is one of increasing irritation in Europe, and just this month the European Parliament proposed new rules that would prevent companies like Google, Apple and Facebook from shielding their profits by forcing them to disclose how much money had been made in each individual European country.
Just over a year ago, the British tax authorities settled a similar tax dispute with Google for £130m ($167.5m), covering back taxes from 2005 to 2015. For 2013, it paid just £20.4m on sales of £3.8bn – an effective tax rate of 0.5 per cent. ®