Google (GOOGL) and the French Ministry for the Economy and Finance have been in disagreement with each other since 2016. The dispute is because of Google’s tax evasions within the EU (European Union) territory. The French finance ministry accused Google of evading paying taxes in France. France attributed it to the loopholes in international tax laws.
Many globally renowned digital companies are said to reduce their tax burden in the EU. Recently, Google and the French regulators have come to a consensus. Google has agreed to make a one-time settlement of over $945 million euros to the French ministry.
The EU fines Google
The dispute began because of different tax structures within the EU countries. Luxembourg, the Netherlands, and Ireland have a lower tax structure compared to other EU countries. Google’s European headquarters are located in Ireland’s capital, Dublin. Most of the revenue reporting happens from Ireland, which has a lower tax rate.
With this move, Google evaded the double taxation implications in other high-tax countries of the EU. The only restriction was that all sales contracts needed to come from within Dublin. According to the French ministry, they recovered $1.6 billion as back taxes.
The executive vice president of the European Commission for Competition, Margrethe Vestager, has been looking into the case for a long time. To find the truth, Vestager held talks with Ireland’s Department of Finance. It wasn’t long before Vestager concluded that many global companies could exploit this loophole and evade taxes in other European countries. The European Commission for Competition has also closely watched Apple (AAPL) and Facebook (FB).
The verdict on Google
After a long-standing battle, both parties decided to settle the issue mutually. The French finance ministry levied a tax of $500 million euros on Google. They also imposed an additional $465 million euros for the delay. However, the final settlement amount was much less than what was initially levied in 2016.
This is not the first time the European Commission for Competition fined a US internet company. There were three separate instances when the commission fined Google. The first instance was in 2017. The commission fined the tech giant $2.7 billion for violating an antitrust rule. Next, the commission fined Google a second time in July 2018 for $5 billion. Google tried to monopolize some of the apps on Android devices. Recently, this March, the commission fined Google $1.7 billion for online ad campaigns.
Apple and Facebook also face fines
Vestager has made it clear that other digital companies with a similar goal should be worried. Because of this, the issue has caused certain media platforms to call Vestager an archnemesis of Silicon Valley. Representing the European Commission for Competition, Vestager fined Apple for $13 billion euros in 2016. Also, Apple paid an additional penalty of $1.2 billion euros.
Additionally, Facebook is another US digital giant that has supposedly been hurt by the commission. The new privacy laws in the EU puts serious restrictions on data collection. A report showed that Facebook used personal data that broke the General Data Protection Regulation law. Such confidential data can is the basis for personalized ad campaigns.
Should investors be worried?
The contingent liabilities for Google keep piling up in the European region. Over time, Google’s breaches with the EU law (or even Apple and Facebook) could be disastrous. Alphabet Inc (GOOG) has shared the earnings for the second quarter of 2019. You can see a backdated impact of the $5 billion in 2018 (visible on page 5 of the revenue statement). The same line also includes a fine of $1.7 billion for the fiscal year of 2019. For a brand like Google, these repetitive violations not only affect the net earnings but also take a toll on the company’s well-established public image.