French tax police raid Google’s Paris office

The raid is part of an investigation into whether Google should pay $1.8 billion in back taxes

French police have raided Google's Paris office as part of an investigation into the company's tax affairs.

The raid began at 5 a.m. Tuesday, Paris time, according to local newspaper Le Parisien, and involved five public prosecutors, 25 computer experts, and investigators from the French tax office and the Central Office for the Prevention of Corruption and Financial and Tax Crimes (OCLCIFF), the public prosecutors' office told local media.

French prosecutors began investigating Google's finances last June, following allegations from the tax authorities that the company was involved in serious tax fraud.

Google channels much of its European advertising sales through its Irish subsidiary, Google Ireland, profiting from low tax rates there. Tax officials in other European countries are concerned about the resulting loss in tax revenue.

Directing profit to a low-tax jurisdiction by having a subsidiary there send out invoices is not necessarily illegal, if there is some justification for the transfer. In manufacturing industries, it's relatively easy to see where the work is done and the value added, but with cloud services such as programmatic advertising, it's much harder to pin down where the work is done or the service delivered.

In January, Google came under fire when it agreed to pay £130 million (US$186 million) in back taxes in the U.K. in settlement of a 10-year investigation there. Fair tax campaigners such as John Christensen of the Tax Justice Network say that sum represented a tax rate of just 3 percent, when the nominal tax rate was over six times higher, at around 20 percent.

French officials believe Google owes €1.6 billion (US$1.8 billion) in back taxes, and unlike the U.K. tax authority, they are disinclined to negotiate a settlement, local media reported in February.

It's not just Google that has felt the wrath of French tax investigators: In 2012 almost 100 tax and police officials raided a Microsoft office on the outskirts of Paris following the discovery at another company of invoices from Microsoft's Irish subsidiary for services officials believed were performed in France by staff of its French subsidiary.

Google officials in Paris did not immediately respond to requests for comment on Tuesday's raid.

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