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Alphabet : Google Pays More than $1 Billion to Settle French Tax Cases -- Update

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09/12/2019 | 01:25pm EDT

By Sam Schechner

PARIS -- Google is paying more than $1 billion in fines and back taxes to settle a pair of tax disputes in France, where it has faced years of investigations into whether it has properly declared all of its activity in the country.

France's financial prosecutor said Thursday that a court has approved a EUR500 million ($553 million) fine the Alphabet Inc. subsidiary agreed to in a settlement of a tax-related criminal probe. The prosecutor has been investigating Google for aggravated tax evasion since 2015, after a complaint from the French tax authority related to the four previous years.

Google confirmed the agreement, and said that said it had also previously agreed to pay EUR465 million in back taxes to France's tax authority, which has for years argued that Google was underpaying its taxes.

The settlements, which prosecutors said were related, were a surprise because a French court two years ago threw out an earlier EUR1.11 billion tax bill that France's tax authority had issued the company for the years from 2005 to 2010. In that bill, the tax authority had alleged that Google had declared too little revenue and profit in France.

But Google says it wanted to settle its pending cases and move forward. "We have now settled tax and related disputes in France that have persisted for many years," a Google spokesman said, adding that the prior settlement with the French tax authority was already "substantially reflected" in Alphabet's prior financial results.

The settlements amount to 2.9% of Alphabet's revenue last quarter and come as France has started levying a new tax against large companies with significant digital revenue in the country, retroactive to the start of 2019. France implemented the tax over harsh objections from the U.S., which has opened an investigation that could eventually lead to retaliatory tariffs.

France and other countries considering similar taxes, stretching from the U.K. to South Korea, contend that companies like Google have long declared too little profit in the countries where they do business. France's new tax will charge 3% on certain types of digital revenue in the country from companies with more than EUR750 million in annual global revenue, including at least EUR25 million in France. France's finance minister said the tax is an "imperfect solution" to capture profit he says should have been declared until countries can agree on new rules on how to allocate corporate profit globally.

Several countries, including France and the U.S., are involved in those talks, in which negotiators are aiming for initial agreement by the beginning of 2020.

The push to change the global tax system stems in part from cases like those Google is settling in France. At issue are tax structures, common in Europe, where companies book most or all of their client revenue at a headquarters in one EU country while reimbursing units in other countries for their costs for marketing, support and other ancillary functions. That leaves little taxable profit in the countries in which their clients live and do business.

French authorities have argued that Google, which collects most of its revenue from European advertising clients at its Irish unit, Google Ireland Ltd., actually does more business in France than that structure implies. Specifically, they said that Google executives negotiate advertising deals in Paris and that such activity gives the Irish unit, which generates more profit, a permanent establishment, or taxable presence, in France.

In 2016, French police raided Google's Paris office as part of the financial prosecutor's probe to determine "whether Google Ireland Ltd, has a 'permanent establishment' in France, and in not declaring some of its activity in French territory hasn't fulfilled its tax obligations," the prosecutors said at the time.

The French deal isn't the first time Google has settled its tax disputes in Europe. The company in 2016 agreed to pay GBP130 million ($160 million) as part of a settlement with the U.K.'s tax authority for the years 2005 to 2015.

The next year, Google agreed to pay around EUR306 million to Italian tax authorities, mainly for the years between 2009 and 2015.

Write to Sam Schechner at sam.schechner@wsj.com

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