The settlement includes a fine of 500 million euros and additional taxes of 465 million euros, Google said in a statement.
Google is going to pay $1.10 billion to French authorities to settle a tax fraud probe that began four years ago in a deal that may create a legal pattern for other large tech giants present in the country.
French investigators have been seeking to establish whether Google, whose European headquarters are based in Dublin, failed to pay its dues to the state by avoiding to declare parts of its activities in the country.
Google pays little tax in most European countries because it reports almost all sales in Ireland.
This is possible thanks to a loophole in international tax law but it hinges on staff in Dublin concluding all sales contracts.
“(The agreement allows) to settle once for all these past disputes,” said Antonin Levy, one of Google’s lawyers, at a hearing in the Paris court.
The combined tax payment is less than the €1.6 billion the finance ministry had been seeking from Google after the company’s Paris offices were raided in 2016. At the time, the ministry had ruled out settling with the company.
Budget Minister Gerald Darmanin told Le Figaro newspaper on September 12, the settlement would create a legal pattern and added that talks were underway with several other big and small companies.
Many countries are planning new legal patterns
European countries have struggled to tax the profits of multinational tech giants like Google derived in their jurisdictions.
The British government is also planning a similar move, at a time when it also hopes to build on its relationship with the U.S. as it exits from the European Union.
France and other countries considering similar taxes, stretching from the U.K. to South Korea, contend that companies like Google have long declared too little profit in the countries where they do business.
France’s new tax will charge 3% on certain types of digital revenue in the country from companies with more than €750 million in annual global revenue, including at least €25 million in France.
France’s finance minister said the tax is an imperfect solution for capturing profit.
Several countries, including France and the U.S., are involved in those talks, which negotiators aim to result in initial agreement by the beginning of 2020.
The push to change the global tax system stems in part from cases like those Google is settling in France.
Google have more business in France than that structure implies
At issue are tax structures, common in Europe, where companies book most or all of their client revenue at a headquarters in one EU country while reimbursing units in other countries for their costs for marketing, support and other functions.
That leaves little taxable profit in the countries in which their clients live and do business.
French authorities have argued that Google, which collects most of its revenue from European advertising clients at its Irish unit, actually does more business in France than that structure implies.
Specifically, they said Google executives negotiate advertising deals in Paris and that such activity gives the Irish unit, which generates more profit.