A French court has ruled against the country’s own tax authority, and decided that Google need not pay a €1.11B ($1.27B) tax bill. Although the ruling so far applies only to Google and only in France, it sets a precedent that could influence other cases in Europe.
The French government took the view that when Google sold ads to French companies, that revenue was earned in France, and was subjected to taxes there. Accordingly, it sent the company a bill for almost $1.3B, covering ads sold in the country between 2005 and 2010, down from an earlier demand for €1.6B …
Google disagreed, arguing that the ads are actually sold in Ireland, and that its French company merely provides marketing and logistical support services. The government rejected this position, calling the company’s business structure ‘fictitious.’
The WSJ reports that although the court sided with Google, the French government was considering an appeal.
In a decision issued Wednesday afternoon, Paris’s administrative tribunal ruled that Google’s lucrative advertising-sales business had no taxable presence in France—absolving it of income or sales taxes on advertising income from French clients […]
French Budget Minister Gérald Darmanin said that the tax authority is analyzing the decision with a view to appealing it, noting “the significant role of French employees in Google’s commercial activity in France.”
A subsequent Reuters report confirms that it will indeed appeal.
“We will appeal this judgment in defence of the interests of the state,” budget minister Gerald Darmanin said.
The ruling could turn out to be an extremely significant one. While a precedent set in one country does not directly apply to others, all European Union countries are supposed to abide by the same harmonized tax rules for companies doing business there. This means that courts in other European countries may view the ruling as having broader effect. Among other things, it could threaten the tax deal Google did with the British government, an arrangement some considered illegal.
It may have particular significance for Apple, which has been applying the same approach as Google, in funnelling the proceeds of sales from Apple Stores across Europe into an Irish company. It then paid a very low rate of taxation in Ireland, an arrangement recently held to be illegal. The European Commission has instructed Ireland to recover €13B ($13.7B) of unpaid tax. Both the Irish government and Apple are separately appealing that ruling.