A storm is brewing in Europe over how little Internet powerhouses like Google and Amazon are paying in tax.
Governments, hungry for money to prop up their struggling economies, are accusing the technology giants of incorporating themselves in low-tax countries so they can avoid paying hundreds of millions of dollars to countries such as Germany, Britain, and France, where most of their European income is derived.
In Britain on Monday, a lawmaker pushing to tighten laws said the multinationals' ability to escape corporate taxes "is outrageous and an insult to British businesses and individuals who pay their fair share".
According to court documents, French authorities raided Google's offices in Paris over the summer and seized documents in a tax dispute. More recently, according to a published report, the French government presented Google with a €1.7-billion (US$2.18-billion) tax bill; Amazon acknowledged one for US$252 million. Facebook is also in the line of fire.
In Italy, the undersecretary of the economy ministry revealed during questioning in parliament on Wednesday that the tax police inspected Google's books, adding that it found millions in undeclared income and unpaid sales tax.
The politicians are cracking down on US-based multinational companies such as Google, Apple, Facebook and Amazon, claiming they are paying little or no tax in Europe in spite of generating billions in revenue there.
But there is nothing illegal to the multinationals' actions. Thanks to the way the European Union is run, companies operating in Europe can base themselves in any of the 27 member countries, allowing them to take advantage of a particular country's low tax rates.
Keep down taxes
By setting up overseas headquarters in low-tax jurisdictions such as Ireland or Luxembourg and shifting the profits out of the countries they have done business in, the online companies have managed to keep down both sales taxes and corporate income taxes on their overseas income.
Google's British chief, Matt Brittin, said last week that the company "plays by the rules set by politicians".
"The only people who really have choices are politicians who set the tax rates," he told the UK's Channel 4 News.
The fact that the methods are legal hasn't stopped resentment brewing among governments, other brick-and-mortar businesses, and households feeling ever-higher tax burdens.
The British Parliament's public accounts committee said Amazon, by accounting for the profits made in the UK elsewhere in the EU, paid €1.8 million (US$2.9 million) in British tax in 2011, on revenue of €207 million. In Italy, the government said tax police determined Google had undeclared earnings of €240 million (US$311 million) from 2002-2006 and had not paid value-added tax of €96 million in the period.
Philippe Marini, the French senator who leads the country's finance commission, estimated France is missing out on some €1.3 billion in taxes from Google, Apple, Facebook, and Amazon. And, Marini noted, that amount would pale in comparison to what they likely owe Germany and Britain where sales figures are even higher.