The European Union’s USD 2.74 billion antitrust fine imposed last week on internet search giant Google, for abusing its market dominance to give illegal advantage to another product of the company, will hit its parent Alphabet Inc’s second quarter net profit by the full amount since the penalty is not tax deductible.
While Alphabet reviews the European Commission’s decision to consider if it must file an appeal against the fine, the company will accrue the penalty on its financial results for the quarter ended June 30, in compliance with the accounting rules, it said in a statement posted by Chief Accountant Amie Thuener.
“We will report a separate operating expense line for the $2.74 billion charge on the income statement,” Alphabet said in the statement. Since the fine is not tax deductible, the charge will reduce its GAAP net income and GAAP EPS by the full amount for the quarter, it added. Alphabet, formerly Google Inc, is due to address a quarterly conference call to discuss second quarter 2017 financial results on Monday, July 24.
Earlier last week, the European Commission hit Google with a EUR 2.42 billion (USD 2.74 billion) fine for anti competitive behaviour to unfairly manipulate search results and give prominent placement to its own comparison shopping service. The decision followed a seven-year investigation into Google’s search algorithms.
The European Commission said that in response to the users’ search queries, results from Google’s own comparison shopping service showed at or near the top, while results from rival comparison shopping services were demoted due to the number of criteria used in Google’s search algorithms. Google has 90 days to change how its search algorithm ranks websites in order to comply with the EU directive of equal treatment to rival comparison shopping services and its own service, failing which, the company will face daily penalties of up to 5% of its average daily turnover.