Tax assessment by the French tax authorities • Audit of Google France • According to the French tax administration : 1 – Google Ireland Ltd has a PE in France as a result of activities performed by Google Inc.’s French subsidiary, Google France (GF) net profit for the activities carried out in France by GIL through GF subject to corporate tax (IS) in France GIL liable for French VAT due to the services provided in France through GF (« fixed establishement ») GIL subject to local contribution on business value added (CVAE) in France 2 - Interposition of Google Netherlands BV is purely artificial (abuse of law) Royalties paid by GIL are subject to withholding tax, as if directly paid (from France) to Google Ireland holdings • Total amount : 1,1 bn € (1,3 bn USD)
Tax litigation:Does GIL have a PE in France ? • Article 2 (9) (c) of France – Ireland DTT : « a person acting in a contracting state on behalf of an enterprise of the other contracting state, other than an agent of an independent status to whom subparagraph (d) applies, shall be deemed to be a permanent establishment in the first-mentionned state if he has, and habitually exercise in that state, an authority to conclude contracts in the name of the enterprise,unless his activities are limited to the purchase of goods or merchandise for the enterprise ». • 2 conditions : • Not a agent of an independent status • Authority to bind GIL’s participation in the business activity in France
1 – Does GIL have a dependant agent PE in France ? • No direct control but GF and GIL are both subsidiaries of Google Inc. (USA) • GF’s activity exclusively dedicated to GIL • No financial risks assumed by GF (cost-plus pricing arrangement) • What did the tribunal rule on that first matter ? • GF is not an independent agent
2 – Does GF have the authority to conclude contracts in the name of the enterprise? • Marketing and service agreement between GF and GIL : GF provides « all services of assistance and advice required by GIL for the purpose of the marketing and sale of online services provided in France » + GF « contributes to market analysis and strategical analysis ». • The agreement expressly denies GF the power « to bind GIL, to act as its mandatory or authorized representative mandated to acting for the account or in the name of GIL or to sign contracts in the name of the latter ». • Tax authorities argument : contrary to the terms of the agreement, GF’s employees are de facto given the authority to conclude contracts in the name of GIL. • It appears from documents seized during the tax raid that employees of GF recruit new clients and negotiate contracts. • What did the tribunal rule on that second matter ?
CE, 20/06/2003 Min c/ Sté Interhome AG (art. 5 of the France-Switzerland tax treaty) : « … has, and habitually exercises, in law or in fact, the authority to bind the enterprise’s participation in the business activity… ». • CE, 31/03/2010 Sté Zimmer Ltd (art. 4 and 6 of the France – GB tax treaty) : « … has, and habitually exercises the authority to bind the enterprise’s participation in the business activity … ». • Here, no evidence that GF’s employees had the authority to conclude contracts in the name of GIL or to bind GIL’s participation in the business activity in France. • Contracts expressly provide that they are signed between the client and GIL. • Even though contracts were negotiated by GF, they had to be approved by GIL. GIL does not have a PE in France.
Same solution under MLI ? • Art. 12 § 1 of the MLI : « Notwithstanding the provisions of a Covered Tax Agreement that define the term “permanent establishment”, but subject to paragraph 2, where a person is acting in a Contracting Jurisdiction to a Covered Tax Agreement on behalf of an enterprise and, in doing so, habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise, and these contracts are: a) in the name of the enterprise ; or b) for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use ; or c) for the provision of services by that enterprise • France did not opt out but Ireland made a reservation on Article 12…