Governments, hungry for money to prop up their struggling economies, are accusing the technology giants of incorporating themselves in low-tax countries so they can avoid paying hundreds of millions of dollars to countries such as Germany, Britain and France — where most of their European income is derived.
In Britain on Monday, a lawmaker pushing to tighten laws said the multinationals’ ability to escape corporate taxes “is outrageous and an insult to British businesses and individuals who pay their fair share.”
According to court documents, French authorities raided Google’s offices in Paris over the summer and seized documents in a tax dispute. More recently, according to a published report, the French government presented Google with a $2.18 billion tax bill; Amazon acknowledged one for $252 million. Facebook is also in the line of fire.
In Italy, the undersecretary of the Economy Ministry revealed during questioning in parliament on Wednesday that the tax police inspected Google’s books, adding that it found millions in undeclared income and unpaid sales tax.
The politicians are cracking down on U.S.-based multinational companies such as Google, Apple, Facebook and Amazon, claiming they pay little or no tax in Europe in spite of generating billions in revenue there.
But there is nothing illegal to the multinationals’ actions. Thanks to the way the European Union is run, companies operating in Europe can base themselves in any of the 27 member countries, allowing them to take advantage of a particular country’s low tax rates.
By setting up overseas headquarters in low-tax jurisdictions such as Ireland or Luxembourg and shifting the profits out of the countries they’ve done business in, the online companies have managed to keep down both sales taxes and corporate income taxes on their overseas income.
Google’s British chief, Matt Brittin, said last week that the company “plays by the rules set by politicians.”
“The only people who really have choices are politicians who set the tax rates,” he told the U.K.’s Channel 4 News.
The fact that the methods are legal hasn’t stopped resentment brewing among governments, other brick-and-mortar businesses and households feeling ever higher tax burdens.
The British Parliament’s public accounts committee said Amazon, by accounting for the profits made in the U.K. elsewhere in the EU, paid $2.9 million in British tax in 2011 on revenue of 207 million pounds. In Italy, the government said tax police determined Google had undeclared earnings of $311 million from 2002-2006 and had not paid value added tax of $125 million in the period.