French finance officials have raided the Paris offices of US internet giant Google as part of a tax fraud investigation

Reports say about 100 tax officials entered Google’s offices in central Paris early in the morning.
Police sources confirmed the raid, but Google itself has so far made no comment.
Google is accused of owing the French state €1.6bn ($1.8bn; £1.3bn) in unpaid taxes.

Full story on the BBC website

Tax accounting

Google, like many other global companies, take advantage of tax regimes in different countries to arrange their affairs. By ensuring that the transaction completed in a high tax jurisdiction makes little or no profit, because it was sold by a subsidiary in a low tax jurisdiction which has already banked the profit, corporation taxes are mostly avoided. But countries are clamping down on this, as with the French tax probe.

The UK government proclaimed that Google paid £130 million in back tax. But critics say that’s disproportionately smallM, i.e. much less than they would have paid if they were based in the UK for tax purposes.

Critics of the critics

On the flip side, the Adam Smith Institute responded that it’s not good news that Google is paying all this tax. In fact their response reinforces their belief that corporation taxes are too high anyway and they conspire to reduce wages.

Why not just reduce corporation tax?

Quite simply, many countries have such a high budget deficit that they can’t afford to. The USA has corporation tax rate of 35%, driving some companies overseas to Switzerland and Ireland. Without that income, the USA would find it hard to repay their debts.

The inescapable conclusion is that corporation tax reductions must be offset with personal tax increases. If the ASI is correct, then that should be largely neutral for the taxpayer, although it won’t feel like it.

The UK has slowly been reducing its corporation tax rate. It is much lower that the USA, at 20%. The current government wants to reduce that further, down to 17% by 2020. If this results in economic growth then this must be welcomed. If all it achieves is lower revenue to the treasury, it will have failed.