05/05/17

Italy, Google End 14-Year Tax Dispute With $335M Settlement

Google announced it has reached a 306 million-euro ($335 million) settlement with Italy’s tax agency that will close the door on a dispute spanning 14 years, reports BNA.

The value of the deal with Google is just short of the 318 million-euro settlement Italy reached with Apple Inc. in December 2015, still the largest single tax settlement case ever in Italy.

At the heart of the case were allegations that Google improperly reduced its tax obligations by logging profits in low-tax jurisdictions like Ireland, rather than in Italy. The corporate income tax (IRES) in Italy was reduced to 24 percent from 27.5 percent in 2017, but is still among the highest in the European Union.

The settlement value is far below the more than 800 million euros Italy reportedly sought at the start, but it is more than a third higher than the 224 million-euro figure that had circulated earlier this year. It covers the period from 2002 to 2015, a significantly broader period than the 2009-to-2013 period indicated when the investigation was first announced last year.

According to Francesco Brandi, a law professor at Rome’s La Sapienza University and a former government tax official, the main impact from the Google deal may come in the future.

“The biggest thing is not the cash for the treasury but the fact that Google and other major players will have to follow these rules from this point forward,” Brandi told Bloomberg BNA.

Recognition of PE Status ‘Significant’

Maurizio Villani, a tax attorney based in the southern Italian city of Lecce, agreed, telling Bloomberg BNA that by striking the deal, Google agreed with the Italian agency’s interpretation that it should be taxed as a permanent establishment in Italy.

“This recognition is significant,” Villani said.

In a statement released from the U.S. headquarters, rather than from the Milan offices of Google-Italia, the subsidiary of Alphabet Inc. stated that, “In addition to the taxes already paid in Italy Google will pay another 306 million euros.”

A statement from Italy’s tax office confirmed the same amount and terms.

Before the settlement was announced, Google reportedly denied it owed additional taxes in Italy, saying it was working together with tax officials and claiming it paid what it was legally required to pay.

Villani said that the IRES is unlikely to be lowered in the near term and that with plans to raise Italy’s value-added-tax, companies will likely be taxed at an even higher rate going forward.

“This settlement with Google is significant, but in terms of tax rates nothing is changing,” Villani said. “The same incentives for companies to look for ways to reduce their tax exposure in Italy remain.”