Some tax collectors, lawmakers and competitors of Google in Europe say this is unfair.
As governments throughout the region seek to close gaping holes in their budgets, they are taking aim at United States multinational companies, especially internet giants like Google and Amazon, which pay little or no taxes in Europe, despite generating billions of dollars in revenue on the continent.
Why on earth do you manipulate your accounts so that you get away with not paying corporation tax in the UK Margaret Hodge, a member of Parliament, asked representatives of Google, Amazon and Starbucks last week, during a heated committee hearing in London.
In France, tax collectors have gone further.
Amazon says it has received a bill from France for taxes and penalties related to the allocation of income between foreign jurisdictions from 2006 through 2010. Other companies, including Google, are also reportedly in the French authorities sights.
Even if the internet is a zone of freedom, it shouldnt be a lawless zone, Najat Vallaud-Belkacem, a French government spokeswoman, said. Fiscal rules should be able to be applied to those activities as well.
Google, Amazon, Starbucks and other American companies facing tax scrutiny say they are doing nothing wrong. They use complex accounting strategies to exploit national differences across Europe in corporate tax rates, which range from less than 10% to more than 30%, and loopholes that can reduce their effective European tax levies to almost nothing.
Google, for example, records most of its international revenue at its European headquarters in Ireland, where the corporate tax rate is 12.5%. Across Europe, customers who buy advertising, Googles primary source of revenue, sign contracts with the companys subsidiary in Ireland, rather than with local branches.
Google ends up paying Irish taxes on only a fraction of the billions of euros that course through its Dublin office. That is because the company uses a variety of methods, including royalty payments to a unit in Bermuda, to reduce further the amount of money exposed to tax liability.
So, while Google told the Securities and Exchange Commission that it generated more than $4 billion in sales in Britain last year, it reported revenue of only 396 million, or $629 million, in its official filings there. The total, the company said, reflected the amount that Googles British unit billed Google Ireland for promotional work, consulting and other activities. Google declared a profit of 31 million in Britain, resulting in a British tax bill of only 6 million.
We pay the tax we are required to pay in every country in which we operate, Matt Brittin, Google vice-president for North and Central Europe, told the parliamentary panel.
Hodge, chairwoman of the Public Accounts Committee, acknowledged that she thought Google, Amazon and Starbucks were probably complying with the law. We are not accusing you of being illegal, we are accusing you of being immoral, she said.
In France, more than morality is at stake. In his testimony to the parliamentary panel, Andrew Cecil, director of public policy for Amazon in Europe, confirmed that the company had received a demand for $252 million from the French tax collection agency. He said Amazon was contesting the claim, which was originally disclosed in an American regulatory filing.
Amazon, which has European headquarters in Luxembourg, another small country with favourable tax conditions for multinational companies, reported 9.1 billion euros, or $11.6 billion, in revenue across Europe last year. It posted an after-tax profit of 20 million euros on those sales, and paid about 8 million euros in tax, Cecil said.
Cecil told the parliamentary committee that when customers across Europe bought books from Amazon, they were actually buying them from the Luxembourg-based Amazon entity, rather than their local subsidiaries. That response was met with incredulity by Hodge, who noted that when she ordered a book from the company, she used a British website, Amazon.co.uk, and the goods were delivered from a British warehouse via the British Royal Mail.
News reports in France note that French fiscal authorities are also seeking back taxes and penalties from Google, amounting to 1.7 billion euros. Vallaud-Belkacem told reporters that she could not comment on individual companies for privacy reasons.
Google, in a statement, said the reports were premature. Google has not received any tax assessment from the French tax administration, the company said.
Europe is not the only place where the complex tax arrangements of US MNCs are being questioned. Australian authorities have sent Apple a bill for 28.5 million Australian dollars, or about $29.5 million, in back taxes.