Cash-Strapped Euro Governments Look To Online Giants For Additional Tax Revenues

Nov 1, 2012 at 11:41am ET by Greg Sterling

Google, Facebook, Twitter and even Starbucks are being criticized and investigated for what several European governments consider to be tax avoidance. In the UK and France in particular Google is under scrutiny. And earlier this week a French newspaper (albeit like the satirical Onion) reported that French authorities had served a whopping EUR 1 billion tax bill on Google.

Google has denied that it has received such a bill.

Google’s practice of billing advertisers and running profits through its Irish subsidiary, which is legal, allows the company to minimize taxes. According to a Reuters review of Google’s public filings and annual report the company “paid income taxes of just 3.2 percent on non-U.S. income of $7.6 billion last year.”

Google has pledged to cooperate with European governments in discussing the matter.

A number of government ministers and UK MPs have expressed frustration, even indignation, that US based internet companies are making considerable profit in the country but not paying taxes perceived to be commensurate with those profits:

Goodman reiterated concerns over what she called artificial devices designed to depress profits, referring to the royalty that Google UK paid to its parent company for use of its search and advertising technology. She cited Facebook’s UK advertising sales of £175m in 2011 and accounts showing it paid only £238,000 tax, while Twitter filed no UK accounts. Google paid £6.09m UK tax on 2011 revenue of £395m.

Coffee giant Starbucks reported to investors that in 2011 that it made healthy profits on its European operations. However it presented a different picture to tax authorities in the UK, France and Germany, saying that it suffered $60 million in losses. Reuters found that the Seattle-based company “paid only 8.6 million pounds of income taxes on 3.1 billion pounds of sales since 1998″ in the UK.

That’s well below 1 percent taxation. One can understand the government frustration anger that confronts such a scenario. People believe that basic fairness and equitable priciples are being violated even if these companies are complying with the letter of the law.

If the UK and European economies were in better shape, however, I suspect there would be somewhat less criticism and complaining.

(Stock image via Shutterstock. Used under license.)

About The Author: Greg Sterling is a Contributing Editor at Search Engine Land. He writes a personal blog Screenwerk, about SoLoMo issues and connecting the dots between online and offline. He also posts at Internet2Go, which is focused on the mobile Internet. Follow him @gsterling. See more articles by Greg Sterling

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