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Google under investigation for tax fraud in Italy

Google continues to cause both upset and official investigations into allegations of tax evasion with its inventive European accounting method. Not content with facing suspicion in both the United Kingdom and France over whether or not it has been withholding revenue and underpaying taxes, now it’s Italy’s turn; an official investigation into the company suggests that it owes more than $100 million in VAT alone.

Italian authorities are now investigating Google’s taxes after it was revealed this week that the company’s European division – which is headquartered in Dublin, Ireland – had failed to declare somewhere in the region of €240 million (Roughly $311 million) in revenue and owed €100m in Value Added Taxes ($109 million). According to Italian news agency Radiocor (a subsidiary of the financial daily paper Sole-24 Ore), Google’s reported 2011 earnings in Italy were €3.6 million from the US and €40.4 million from Dublin, and its tax bill for the year was €1.8 million. However, the figures given by the Italian government ahead of this latest investigation come from the period between 2002 and 2006, which have already been analyzed by authorities as part of an earlier investigation in 2007.

As with the earlier investigations in other European countries, the concern in potential tax evasion comes from the way in which Google handles its European finances, with advertising revenue being handled in part by a Dutch subsidiary which passes them to a third company in Bermuda, which offers no corporation tax; because they end up in Bermuda via the Dutch company – ie, through a country in the European Union – the transfer avoids any withholding tax that would otherwise have been incurred under Irish tax law… And Irish tax law is famously lenient to corporations in order to attract businesses to the country (Amusingly, the Irish/Dutch/Bermudan arrangement is so common that it has a nickname amongst economists: “The Double Irish-Dutch Sandwich.” Somewhere, Ben Wyatt is finding that one hilarious).

Eager to get out in front of the story, Google has already released a statement explaining that it is working with Italian authorities on the matter, although it denies any potential wrongdoing in any tax-related matter. “It is normal for a company to be subject to tax inspections and we have been working with the Italian authorities for some time,” a Google spokesperson explained, going on to say that the company “respects the tax rules of the countries in which it operates” and pointing out that “until now, we have not received any request to pay additional taxes in Italy.” Beyond saying that it was working with Italian authorities, however, Google has not yet definitively said whether it will, in fact, be paying the €100m in VAT owed or adjusting its reported revenue for the period in question.

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