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Microsoft Reportedly Hit With $715M Tax Bill by French Authorities

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David Roe avatar

French tax authorities are reportedly demanding $715 million in taxes from Microsoft, in the latest crackdown by a European country against an American tech firm doing business there.

Bringing Tech Giants 'To Heel' in Europe

According to the reports, which appeared in the French weekly magazine L’Express this week, the tax demands relate to internet advertising and keywords displayed in internet searches across Bing and Yahoo.

Redmond, Wash.-based Microsoft stated it only acted as a commercial agent in the transactions, which was billed through Microsoft Ireland, a country whose 12.5 percent corporate tax rate is considerably lower than France's 33 percent.

As a result, Microsoft only paid $35 million in taxes in France last year.

While $715 million is a substantial chunk of change, even for a company as wealthy as Microsoft, it's not the highest tax claim made by French authorities in recent years.

In 2012, Google's Paris office declared revenues totaling $228 million, a net profit of $10 million and payments equaling $7.7 million in tax. A year earlier, the company paid just $6.5 million in tax.

Google also billed French clients via Ireland to bypass French tax collectors.

In this case, French authorities demanded $1.3 billion in back taxes from the internet search giant. 

Upon appeal, the French courts found in Google's favor, ruling that because Google France didn't have a “stable” presence in the country, it was not liable for the tax. French authorities are currently appealing the ruling.

The 'Double Irish' Arrangement

Amazon, Apple and Facebook have also come under fire from the EU for using the same mechanism, called the "Double Irish," that Microsoft used to avoid tax. The EU has promised to come down hard.

French President Emmanuel Macron campaigned on requiring internet firms to pay taxes to France on the business they conduct in the country.

During his presidential campaign earlier this year, Macron vowed to bring the big internet giants to heel and to “create a single, digital market” in Europe.

Learning Opportunities

Macron clearly means business — and he’s not just talking about the money.

Europe Gets Tough on US Tech Firms

On Aug. 29, Google provided European regulators with a list of proposals for how it will display search results in Europe following its $2.7 billion fine for favoring its own shopping services in its search results.

European Commission competition chief Margrethe Vestager described the search giant's practice as illegal at the time of the ruling:

“What Google has done is illegal under EU antitrust rules. It denied other companies the chance to compete on the merits and to innovate. And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation."

In fact the EU issued a tender just after the ruling looking for a firm to monitor Google’s compliance with the original ruling and fine.

The EU will also introduce its General Data Protection Regulations in May 2018, making European citizens’ personal information and data a key plank of the EU's digital strategy.

European regulations are getting tighter and the EU appears increasingly willing to ensure American tech companies are following them. 

Google is also under fire from the EU over practices related to its smartphone mobile operating system Android and could see another fine levied by the end of the year.

What happens there will set the tone for a new year that is already shaping up to be a challenging one for tech companies everywhere.