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Operation Tulip (Opération Tulipe) was the code name of a French army offensive launched in November 1951 during the First Indochina War. Following a string of defensive victories, the French adopted a more aggressive approach. After achieving the initial objectives, however, the tide of war turned once again and the French forces were forced to withdraw from the area by February 1952.
With its unconquerable logiciel, Google (the engine) fetched on my ordinateur a chapter of history to show me that the French have a penchant for such tulip-related operations. 65 years later, on Sunday, 29 May 2016, France received official acknowledgment of an unprecedented raid by state authorities on the Google offices in Paris. Some 96 people were involved in the action, including representatives of the National Prosecutor Financial (NFP), the Central Office for the Fight against Corruption and Financial Crimes and Tax (OCLCIFF), plus IT experts.
Code name – Operation Tulip
Summarised disclosures of Mrs. Eliane Houlette, head of NFP:
1. The most important operation led by the NFP (a state body established two years ago, with 15 prosecutors now): "It looks a bit like the battle between David and Goliath."
2. The investigation started based on a Tax Administration complaint and developed into a charge of "aggravated tax fraud and money laundering."
3. The objective of the investigation is to determine whether Google Ireland Ltd. has a permanent establishment in France (where it has 700 employees) and whether it has a tax system similar to other French enterprises.
4. The operation required a code name, because, when NFP took over the investigation a year ago, it was decided "never to mention Google by name."
5. Preparations were conducted in “total secrecy”, with a very small number of people involved and communications conducted the good “old school” way, by taking them offline (pardon! hors-connexion).
6. The result was a “considerable” amount of data; “at least as much, if not more than, in the Panama Papers case”.
7. “It will take a couple of months, hopefully not years, to process the information, but the investigators do not have the state-of-the-art software / logiciels that would enable them to make better progress”. Performant logiciel would cost "around 200,000 euros."
8. The expectation is that there will be “a trial where they bring forth their arguments and we bring forth our arguments.”
To all of the above, I add further information:
9. The dispute with the French tax authorities has been known for at least five years. In June 2011, the French conducted a significant raid on the IT giant’s local offices, during an inspection regarding transfer pricing between its French subsidiary and the parent company at European level, based in the Republic of Ireland.
10. In March 2014, Google France received a tax decision from the French tax authorities for an unspecified amount, rumoured to be around EUR 1.6 billion (with EUR 0.6 billion in late-payment penalties).
11. In its disputes with several European national tax administrations, Google has argued its position based on the group business model, involving a largely automated process whereby all European sales are invoiced by the company in the Republic of Ireland (and in doing so recognises that, like other giants of IT, it chose the location based on the friendly business and fiscal environment). Google Ireland admits that its big advertising clients are introduced by its French, British, Italian, etc., subsidiaries, which receive remuneration for the provision of market services.
12. The French market is officially rated by Google at a mere EUR 216 million, but estimated by local advertisers to be worth EUR 1.7 billion. All of which is a far cry from what goes on across the Channel, with the British market officially contributing 10% of the global earnings of the search engine. Indeed, the UK is the only market, besides the US market, which is dealt with separately in the Group’s global reports.
13. Regarding the subject of the permanent establishment, the British tax authorities conducted a ten-year investigation of Google. That process was completed earlier this year with agreement over a transfer pricing adjustment, which is basically a recalculation of the remuneration received via Ireland.
It is not tax evasion, but rather a transfer pricing issue! The agreement implies the retroactive payment of taxes amounting to EUR 130 million euro (with no penalties announced). Analysed in comparison with the company's revenue, the amount generated new political debate. For the British case, you can find explanations from Google and HMRC and a short film about the tempest surrounding transfer pricing issues ... in Shakespeare’s words!
14. Against this background, the authorities in Paris have announced categorically that “we [the French state] don’t do deals like Britain; we apply the law”. (It's interesting that the French do not see Google's case as a transfer pricing issue, as agreed, finally, by the British authorities. But a few days before their raid on Google, they also paid a visit to McDonald’s offices regarding "a transfer pricing issue", says Ms. Houlette).
15. In February, Google boss, Sundar Pichai, chose France as his first destination on his maiden tour of Europe. He was welcomed with high hopes by the French Minister of the Economy, Emmanuel Macron, who did not say a word about the billions of euros subject to tax disputes. Pichai had just pledged to help teach computer skills (aux pratiques numeriques) to as many as 200,000 French people (employees, undergraduates and underprivileged people) this year. A move described by Paris newspapers as a “seduction effort”. However, Google had been shown an “open for business” sign, at least in a rather British way (as no one likes tax harassment). But at the same time, Google reverted to the official position that the law is being respected.
16. Italy also has tax claims against Google (the Guardia Finanza calculated a sum of EUR 227 million to be paid), but the IT giant isn’t wanted by tax authorities everywhere. Germany has so far staked no extra claim against the multinational. German officials say that the company currently meets the requirements of applicable laws, while still admitting to their support in the EU and OECD to system updates that would enable collection of higher revenues for the budget from business group companies (see BEPS CCCTB, minimum effective taxation).
17. Today (1 June 2016) no trains are moving in France. It's a new day of strikes.
This is another piece of the puzzle framing the European case regarding Google – the transfer pricing saga! This latest French drama reminds us that today we are doing transfer pricing without knowing it, as the great Molière would likely have said.
Some pieces fit, for others ... we do not yet have all the necessary elements to match them. If you are asking, “why is France so afraid that it even “cut” the internet at the National Financial Prosecutor, so that a strictly confidential inquiry would not be discovered (despite it being known about for five years)?" ... We can imagine various scenarios, or possibly, we can amuse ourselves with considering how, instead of searching the internet, they took a step back in time to the Le Petit Larousse dictionary.
If you are asking "how can 200,000 euros not be found in the French treasury, if this would result in revenues of EUR 1.6 billion?" I would answer with another QUESTION - "can we assume that the British are conceivably far from having failed to do their own legal homework when they struck their bargain with Google?”
In the meantime, I come back with an older question - In a Europe changing on all sides (including political and fiscal), how prepared are we as a state / economy to find a place in this new puzzle growing before our eyes (see pt. 16 and an article on the subject here)?
And, by the way, here's another piece of the puzzle:
18. Speaking of which, as recently as last week the European Parliament’s Committee on Economic and Monetary Affairs passed the EC’s anti-tax avoidance directive, further driving the limits on interest payment deductions down to a maximum of 20% of earnings or EUR 2 million (whichever is higher). Moreover, the double taxation avoidance principle will cease to be applied if the foreign income was taxed at a rate lower than 40% of the national rate, while a minimum 15% rate should be set on any earnings from outside the EU.
These may not be the final figures to be released by the EU Political Council, but this should be the ground over which we as a nation show some pragmatism and at least make an effort to simulate a negotiation process.
Unfortunately, as so many times before, we remain disconnected from these issues. Neither are we informed as to whether the Bucharest authorities have had negotiations regarding this issue. And when (if) we wake up, it might be a bit late.
Again, these are the real topics being discussed and changing Europe, beyond the other points affecting some others. We can not afford not to take a position ourselves!