Alphabet-owned Google (GOOGL - Free Report) has decided that it’s better to pay the piper. The company has settled its tax dispute with French authorities that have been investigating it since 2016, when they raided its French offices.
It’s a fairly normal practice for companies operating across Europe to choose their headquarters in a low-tax zone and book all their sales there and Google’s official jurisdiction, like many other technology companies was Ireland with its 12.5% tax rate. But in Google’s case, the investigation likely revealed that the company omitted this safeguard.
As a result, it was easy game for a French court, which ordered it to pay a €500 million fine, in addition to the €465 million in back taxes it had already agreed to pay. That adds up to more than a billion dollars. The finance ministry was looking for 1.6 billion euros.
The company may have settled to bring things to a quick conclusion in the light of an ongoing antitrust probe of big technology companies back home that is likely to be far more comprehensive and difficult to handle.
However, the downside is that it could trigger a series of fines and investigations across Europe as other countries also try to get in on the cash. The UK in particular is looking for something, especially since the sweetheart deal ($160,000) it got from Google a few years back was nowhere near what it should have been. Still, UK needs U.S. support as it tries to leave the EU. So it may not finally go ahead with these plans.
The French authorities earlier announced a one-of-its-kind 3% tax on digital companies that led President Trump to threaten increased tariff on French wine. France tried to get support for an EU-wide digital tax, but Ireland, Denmark, Sweden and Finland opposed the move.
Larger economies within the EU have always been in opposition to the principle of a member nation attracting foreign investment by lowering taxes. That’s because it leads to significant revenue loss for them. Google earlier settled with Italian authorities by handing over €306 million in back taxes.
The company maintains, “We remain convinced that a coordinated reform of the international tax system is the best way to provide a clear framework for companies operating worldwide.” Such an agreement may be ready as early as next year when the 134 OECD nations meet in Paris. France has said it will remove the digital tax once the international tax system kicks in.
Alphabet shares carry a Zacks Rank #2 (Buy). Buy-ranked Internet services companies you can also invest in include TiVo Corp. (TIVO - Free Report) , Cango Inc. Sponsored ADR (CANG - Free Report) , Sohu.com Inc. (SOHU - Free Report) and Upwork Inc. (UPWK - Free Report) . You can also see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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