The European Commission has replied to TaxWatch’s call to launch an investigation into the tax structure of Google. The Commission has said it will consider the information provided by TaxWatch as part of its ongoing investigation into tax agreements in Ireland and the Netherlands.
TaxWatch wrote to the European Commission on 26 April to highlight the structure that Google has put in place to avoid paying taxes in Europe. Google charges all of its European customers via a subsidiary in Ireland, Google Ireland Limited. That company pays out large royalty payments for the use of Google’s intellectual property to a company in the Netherlands, which in turn pays out almost all of the revenue it receives as a royalty to a company registered in Ireland but tax resident in Bermuda.
The royalty payments are substantial, comprising 46% of Google Ireland’s revenues in 2017, the last year where accounts are available. The structure minimises profits and tax liabilities in Europe, whilst making sure that profits appear in Bermuda, which has a 0% corporation tax rate.
TaxWatch questioned whether the scale of royalty payments made by Google to its Bermuda subsidiary was in line with the arms-length principle. This principle is used by tax authorities to establish whether a company is artificially shifting profits to tax havens, and whether the government of the Netherlands and Ireland had come to any special arrangements with Google to allow them to make such payments.
Responding to TaxWatch’s letter, Max Lienemeyer, Head of the State Aid: General Enforcement and Scrutiny Unit of the European Commission’s Competition DG, told TaxWatch that the Commission had an ongoing investigation into tax rulings granted by Ireland and the Netherlands, and was seeking to establish whether certain tax agreements had resulted in a selective advantage being given to particular companies.
Mr Lienemeyer thanked TaxWatch for the information provided, and said it would be considered as market information in the light of their ongoing investigation into transfer pricing deals.
In addition to raising this issue with the commission, TaxWatch has put forward a proposal on how countries could change domestic legislation to ensure that royalty payments made by large multinational companies to tax haven subsidiaries are subject to income tax.