Italian tax police believe Google evaded 227 million euros in taxes: sources

MILAN (Reuters) - Italy believes Google GOOGL.O evaded 227 million euros ($247.5 million) in taxes between 2009 and 2013 and could hit the U.S. Internet giant with hefty punitive fines, investigative sources said on Thursday.

The neon Google sign in the foyer of Google's new Canadian engineering headquarters in Kitchener-Waterloo, Ontario January 14, 2016. REUTERS/Peter Power

The report by Italian finance police was due to be handed to Google later in the day and comes amid an increasingly angry debate across Europe over taxation of multinationals who park earnings in low-tax nations.

Asked about the Italian report, a Google spokesperson said: “Google complies with the tax laws in every country where we operate. We are continuing to work with the relevant authorities.”

Finance police suspect that over a five-year period, Google failed to declare some 100 million euros of revenues in Italy which would have fallen into a 27 percent corporate tax bracket.

In addition, some 600 million euros of royalties should have been revealed to the tax authorities and would have faced a tax demand for some 200 million euros.

A source said there was no agreement yet with Google on the issue and said the eventual sum requested of the U.S. company could be considerably higher once penalties and interest arrears were added.

Google’s latest figures show it paid 2.2 million euros of tax in Italy in 2014 on revenues of 54.4 million euros generated in the country. Italy’s Communications Authority estimates Google’s Italian revenues at around 10 times higher.

Last week Google agreed to pay 130 million pounds ($185 million) in back taxes to the British authorities, though the opposition Labour Party and others said the sum was too small compared with the profits the company earned in Britain.

In December, Apple Inc AAPL.O agreed to pay Italy's tax office 318 million euros to settle a dispute over allegations it failed to pay taxes for six years, a source with direct knowledge of the matter said.

On Thursday, the European Commission weighed into the row over taxation of multinationals with a proposal that would allow EU countries to tax corporate profits at home in some cases, even if the money had been transferred elsewhere.

Google has based its regional headquarters in Dublin, where corporate tax rates are much lower than in Italy. The firm says its Italian presence merely provides consulting and marketing services for Google Ireland, the Middle East and Africa.

EU tax law protects companies against paying tax in a country where they do not have what is termed a “permanent establishment”.

Speaking to Reuters last September, a Google spokeswoman said the company was “naturally” attracted by Ireland’s relatively low corporate tax rate, as well as by the expansion prospects the country offered.

“If governments don’t like these laws they have the power to change them,” she said.

Reporting by Sara Rossi, Manuela D’Alessandro, Emilio Parodi, Writing by Crispian Balmer; Editing by Janet Lawrence