After its victory before the administrative court and on appeal, Google appeared to be in a strong position in its standoff with the French state. The group was however under the threat of a decision of the Council of State which could have overturned these decisions and concluded to the existence of a permanent establishment in France.

The digital giant will pay a total of just under 1 billion euros to settle its legal and tax disputes with the French state.

The transaction validated this Thursday by the Paris tribunal de grande instance marks the end of a standoff of more than three years between Google and the French state. The digital giant will pay a total of just under 1 billion euros to settle its legal and tax disputes. This is slightly less than the sums claimed by the tax authorities before the administrative court (1.15 billion euros) and clearly behind the tax adjustment initially imposed (1.6 billion euros).

Until now, Google seemed to be in a strong position in this tug-of-war. The administrative court had rendered in July 2017 a decision which was favorable to the company, validating its position according to which it does not have a “permanent establishment” in France, otherwise it would have had to pay significantly more taxes. Last April, the Paris Administrative Court of Appeal confirmed the cancellation of the adjustment imposed by the French tax authorities. So what prompted Google to accept this $ 1 billion deal?

Image reasons

In an interview with “Figaro”, the Minister of Action and Public Accounts, Gérald Darmanin, especially highlights image reasons: ” Businesses [y] are very sensitive, he explains. They do not want to be seen as bad payers, nor to have bad relations with the French tax administration. “

However, the image of the Gafa has been tarnished for several years because of their tax reputation. However, they have only changed their tax structure in Europe on the margins, which is to bring the maximum profits back through their parent company in Ireland.

There are therefore necessarily legal explanations for Google’s turnaround. On the one hand, the group was still under the threat of a decision of the Council of State which could have invalidated the position of the administrative tribunal. If the Council of State had concluded that there was a permanent establishment, the tax consequences for Google could have been heavier.

Reinforced penal arsenal

Then, the penal arsenal against fraud has clearly strengthened in recent years. A first step was marked by the creation of the Judicial Convention of Public Interest (CJIP), in the Sapin 2 law, promulgated at the end of 2016. Subsequently, this tool inspired by American law, which allows a company to avoid a criminal conviction by paying a hefty fine, has been extended to tax evasion under the Fraud Act of 2018.

This “penal transaction” is proving to be extremely effective. HSBC, Société Générale, Carmignac, in Paris, and even three large construction SMEs in Nanterre… Some seven transactions have already been signed. There is an emblematic case of a company which refused to deal with the National Financial Prosecutor’s Office. This is UBS. The bank preferred to plead its case in court rather than sign a transaction. She was ordered at first instance to pay a record fine of 4.5 billion euros, while she was negotiating with the PNF around 2 billion euros. A precedent that could scald Google.