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Europe takes on tech giants and their tax havens

Monday - 12/3/2012, 3:59pm  ET

By LORI HINNANT
Associated Press

PARIS (AP) - A storm is brewing in Europe as nations try to force Internet powerhouses like Google and Amazon to pay more in taxes.

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 (EURO)1.7 billion ($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 paying 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 1.8 million pounds ($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 (EURO)240 million ($311 million) from 2002-2006 and had not paid value added tax of (EURO)96 million in the period.

Philippe Marini, the French senator who leads the country's finance commission, estimated France is missing out on some (EURO)1.3 billion in taxes from Google, Apple, Facebook and Amazon. And, Marini noted, that amount would pale in comparison to what they likely owe Germany and Britain where sales figures are even higher.

"A bakery across the street is easier to control," Marini said. "And households can't relocate to Ireland just like that."

The companies say they comply with the law and are cooperative in countries where they operate, but do not elaborate. Even people critical of their tactics say ultimately the job of an accountant is to keep a client's tax bill as low as possible. The companies also stress that they do pay some taxes - contributions to their employees' social security, for example.

France, however, is going after the tech companies aggressively: On June 30, tax authorities raided Google's Paris offices, according to court documents posted online after Google contested the seizure of its files. The tech giant has denied receiving a (EURO)1.7 billion bill from the French government and says it pays all legally required taxes.

Taxes fall under French privacy law, so specific amounts are not made public. But the raid on Google's Paris offices is a sign the French government believes the tech company has more than just incidental support staff in the French capital. France's budget minister, Jerome Cahuzac, said "a certain search engine needs to regularize its situation in France".

Facebook, Amazon and Apple have come under similar French scrutiny, according to published reports and public filings. Marini said French law is lagging behind, but hopes to catch up. Tech companies differ from, say, a grocery store in that their product is stored on servers and not on a shelf. And unlike a family, the companies can essentially locate _ and re-locate _ anywhere.

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