The French tax authority is definitely earning its money this year! Hot on the heels of the tax reclamations from pretty much every other big US tech player in France (Ebay/Paypal, Facebook, Amazon,Google, Microsoft, and Yahoo), now comes news of another; This time its LinkedIn. The news of a visit by the French taxman to LinkedIn’s Paris offices first leaked on Friday via Le Point. Apparently the tax authorities showed up, unannounced of course, on February 21st late am at LinkedIn’s headquarters in western Paris. During their visit they not only asked to see information relevant to a tax investigation, but also requested access to content on some of the 30 employees’ computers. The rumor of the inspection was ultimately confirmed by LinkedIn who offered the standard, somewhat predictable response for these situations – “As is the case with other technology companies, the French tax authorities recently visited the premises of LinkedIn France SAS in Paris . We believe we are in full compliance with the applicable French and international tax rules, and we cooperated fully with tax representatives and will cooperate again if needed.”
Of course, as is always the case, conforming or complying with tax laws is very much up for interpretation. What raised the red flags for French tax authorities’ were two key elements of LinkedIn’s declarations. Firstly, that they declared revenue in France of €2.2 million (0.5% of their global revenues), a bit odd from the taxman’s perspective given their 4 million users in France. Second, that they paid just €35k in taxes in France. As has now become the norm across Europe for international companies, LinkedIn works hard to ‘optimize’ the tax they pay. Dubious perhaps, but illegal? Well, that’s up for debate.
In LinkedIn’s case, their European parent company LinkedIn Technology Ltd is based in Dublin, but interestingly, doesn’t have ‘residence’ from a fiscal perspective there. Instead, their fiscal residence is in the Isle of Man. Largely due to the royalties that they pay their US parent company, LinkedIn just manages to break even in Europe every year, which has supposedly resulted in them having paid little to no tax in the Isle of Man (or elsewhere in Europe).
Tax reclamation fever has spread well-beyond France, with several European countries jumping on the bandwagon. Just today came the news that the Danish authorities might reclaim $1 billion from Microsoft as a result of convoluted tax treatment of an acquisition that they did in 2002. Even Italy has gotten on board, claiming in December that Google had undeclared earnings of €240 million ($324 million) and had €96 million in outstanding VAT payments.
The problem with all this, which has been pointed out by the OECD, is that use of a tax haven is technically not illegal (however, cooking the books to pay no tax is). The problem, as we pointed out many times, is the lack of a cross-EU approach to corporate taxation. Given that the economic situation across the EU continues to be ‘challenging’, member states’ tax reclamation efforts are unlikely to stop. A common policy would at least bring some sanity back into this situation. But given the EU’s inability to make these types of bold moves as well as the member states’ reluctance to give up sovereignty on tax matters, a common tax policy is unlikely to become a reality anytime soon.