A visitor passes the Google logo next to an image of local monuments of the Brandenburg Gate and the Fernsehturm (TV tower) in Berlin, Germany | Adam Berry/Getty

Europe turns against Google

The tech giant’s tax dealings have stirred a new public outcry across the continent.

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Updated

If Google thought its troubles in Europe were over, it was badly mistaken.

After negotiating sprawling antitrust probes, the Silicon Valley-based firm now faces a fast-spreading legal and political brushfire over its tax affairs that adds to existing disputes over competition and privacy, and has the potential to dwarf its previous problems in the European Union.

After Google announced last month it was paying £130 million in back taxes to the U.K. authorities, the governments of Italy, France and Germany have lined up to claw back taxes or throw their weight behind European efforts to clamp down on sweetheart tax deals. The European Commission is carrying the torch, vowing to crack down on tax avoidance in a directive published last week.

Google is not the only U.S. tech firm to be concerned by European moves on antitrust; Facebook, Amazon and Apple are too. But after the announcement of its U.K. tax settlement backfired by setting off a media storm, the firm has found itself cast in the role of chief tax villain amid rising public awareness of corporate tax deals across the EU.

That poses a serious public relations risk for a company that has so far been seen as “too cool to fail.”

“After the tax bills themselves, the biggest threat to Google is loss of reputation which could result in higher taxes and lower revenue and share price,” said Mark Dober, a public relations consultant in Brussels.

Un-Google mood

This was not the way things were meant to go for Google, which enjoys greater popularity with European consumers than Facebook or Uber, according to a survey by Brunswick.

But on taxes, as with other hot issues like privacy, the company failed to judge the changing mood in the EU. The same survey, which was conducted in September, before Google’s recent tax debacle, showed that more than 71 percent of respondents were very concerned about tech firms dodging taxes — higher than for any other complaint.

In Britain, high-profile tax avoidance cases like Starbucks’ in 2014 primed public opinion against foreign companies that appeared to pay a fraction of what they owed. When Google announced its U.K. settlement, longtime antagonists in the publishing world, led by News Corp chief Rupert Murdoch, were ready to tap into the reserve of frustration and amplify it in their newspapers, turning what might have been a non-item into major news.

“THE GOOGLE CONSPIRACY,” blared Britain’s Daily Mirror (not a Murdoch title), in one of many unfavorable reactions to the U.K. settlement. Google said the company has always complied with tax laws. The company declined additional comment for this article.

That sort of tabloid-fueled outrage is absent on the continent, where the French and German public remains more concerned about the way Google uses their personal data than the company’s tax bill.

But indignation over privacy — fueled by anger over revelations of mass spying by the NSA — runs parallel to the tax controversy, and it’s no less of a headache for Google. After the collapse of safe harbor, a longstanding accord to let information circulate freely between the U.S. and the EU, national privacy watchdogs led by France’s CNIL are pressing for a new deal that would reassure Europeans about the way their personal information is used.

If the two sides fail to reach a compromise, the resulting confusion could have a negative impact on dozens of multinationals, especially Google and other tech companies that make money by using personal data to sell advertising.

Google is also facing sprawling antitrust investigations in Brussels, targeting its search engine and mobile software businesses. The Commission brought charges in one case last April and warned the company it could be on the hook for fines potentially running into the billions.

Ahead of the curve

While Google’s tax situation is not top news on the continent, it’s getting plenty of attention in the European Parliament, where MEPs on a special tax committee told POLITICO they wanted the firm’s representatives to explain the U.K. settlement.

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Locals in France, Germany, Italy and elsewhere may be less vocal about Google’s taxes because they trust authorities to negotiate hard with the company. Italian and French tax officers have carried out audits on Google’s local operations that could lead to big settlements, with the French media reporting that the firm has already aside €500 million to settle its French tax bill.

French Finance Minister Michel Sapin made clear last week that Google was still negotiating its tax bill.

“It’s good that there has been a deal in Britain,” Sapin said. “It will be even better when there is a deal in France and Google will pay what we believe is necessary for Google, which has a lot of revenue for France.”

A source close to the talks told POLITICO that the U.K. had failed to penalize Google for late tax payment, and had not forced the company to declare more profits in the country. France doesn’t want to repeat those mistakes.

Meanwhile, France and Germany both backed legislation to enforce country-by-country corporate reporting, which would force all multinationals to declare not just profits and tax paid in each country but also the scale of their economic activity and wage bill.

With country-by-country reporting coming into force in many states this year, tax experts said that Google and other firms would have a harder time playing different tax jurisdictions off against each other.

“Five, 10 or 20 years ago, companies could look to get the best tax deal possible in each place, with no expectation that tax authorities in different countries will be comparing notes,” said Alex Cobham, research director at the Tax Justice Network, an advocacy group. “That’s changed.”

“Now the public is very interested, and they’re ready to put pressure on governments.”

Given the momentum gathering behind tax policy changes, analysts argue that the best public relations move for Google might be to get ahead of the curve — by publishing country-by-country activity reports before it is legally obligated to do so.

“Google should abide by the basic principles of good crisis management by acknowledging their responsibilities; communicating candidly with their European stakeholders; and taking charge of their tax problems through bold and decisive actions,” said Dober.

Authors:
Nicholas Vinocur 

and

Nicholas Hirst