Google failed to declare £195m, say Italian police as they launch tax probe - The Guardian

The Italian police have launched a new investigation into the tax affairs of the internet giant Google, which the Rome government said this week had failed to declare revenue totalling more than €240m (£195m).

In answer to a parliamentary question, the finance ministry said Google had also failed to pay almost €100m in VAT.

But a spokesperson for the company said it "respects the tax rules of the countries in which it operates", adding that "until now, we have not received any request to pay additional taxes in Italy".

At the centre of the probe is Google's European base in Dublin and complex arrangements whereby its earnings, royalties and profits are shuttled between Ireland, Bermuda and the Netherlands.

The US Internal Revenue Service has given those arrangements its blessing, but they are coming under ever-greater scrutiny in Europe.

Tax authorities in Britain and France are already looking into Google's affairs and those of other big internet players. On 13 November Amazon said it would fight a €252m French demand for back taxes, interest and penalties. The demand was submitted in connection with "the allocation of income between foreign jurisdictions". Amazon minimises its tax bill in Europe by funnelling its sales through Luxembourg.

In the same way as in other European countries, Google's Italian subsidiary declares as its earnings the payments it receives for its services to the group's headquarters in California and a subsidiary in Ireland. According to Radiocor, an Italian news agency owned by the financial daily Il Sole-24 Ore, Google Italia's 2011 earnings were €3.6m from the US and €40.4m from Dublin.

Its advertising revenues, however, go to Google Ireland Ltd. According to a report in the Irish Times, part is then sent as royalties to a Dutch subsidiary, which in turn passes most of it to a holding company in Bermuda where there is no corporation tax. As the money goes via the Netherlands, another EU country, no withholding tax is due to the Irish authorities. The arrangement is known to tax experts as a "double Irish-Dutch sandwich".

Google nevertheless pays tax in both European jurisdictions, as it does in Italy. According to Radiocor its 2011 tax bill was €1.8m. The latest investigation only concerns earnings in the period from 2002 to 2006. These have already been the subject of an inquiry, carried out in 2007.

The company said: "It is normal for a company to be subject to tax inspections and we have been working with the Italian authorities for some time."

With the non-party government of Mario Monti spearheading a drive to eliminate Italy's budget deficit, officials have stepped up their efforts to boost tax revenues from companies and individuals alike.

Google has also been targeted in Australia where the government has announced new draft tax laws designed to clamp down on big companies that use offshore vehicles to avoid higher local taxes.