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Why France's investigation of Google took place strictly off-line

The investigation that led to the raid of Google's offices in Paris, as part of a tax evasion probe, had to be conducted offline, according to a financial prosecutor.

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The Google logo at Google headquarters in Mountain View, California. The company's Paris office was raided last week as part of a tax fraud probe.

Stephen Lam/Reuters/File

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It took the kind of sleuthing that – in the age of Google – most people wouldn't conceive of. But in advance of this week's surprise raid of Google's offices in Paris, French authorities said they investigated the company for suspected tax evasion for a year without using the Internet, and without uttering the company's name in an effort to avoid leaks. Only one word processor was allowed, and Google's code name, "Tulip."

"We worked with computers, but pretty much only with word processing," Eliane Houlette, who directs France's financial prosecutors, said in a Sunday interview on French radio Europe1, according to Bloomberg. The nickname 'Tulip' "came up because the mother ship was registered in the Netherlands," where the tulip is an unofficial national flower.

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That location is part of the search giant's problems in Europe. International filings show Google is moving money from one subsidiary in Ireland to another one in the Netherlands, and finally to a different Irish subsidiary that is physically based in Bermuda, the land of zero corporate income tax. Ireland is the site of Google's international headquarters and has one of the lowest corporate tax rates in Europe. 

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The amount the company transferred to Bermuda grew by 16 percent in 2014 from the previous year, according to documents Google's subsidiary filed with the Dutch Chamber of Commerce on February 4, as reported by Bloomberg.

By moving $12 billion in international revenues to the Bermuda shell company, Google saved $2.4 billion in worldwide taxes in 2014.

Now, French authorities say that Google owes them $1.8 billion in back taxes, and it won't settle for a lower payment.

"We'll go all the way," French Finance Minister Michel Sapin told European reporters, meaning that the country will aggressively pursue US multinationals doing tricky accounting to hide profits, and it will make Google pay back the full amount of taxes owed.

Google negotiated with Britain in January to pay it $190 million in back taxes, a move that was criticized for being too low, as media outlets have reported.

This time, "there won't be negotiations," Mr. Sapin said, dismissing the possibility of a similar tax deal in France. He said that the amount Google will have to pay France will be "way bigger" than its UK settlement, according to The Telegraph. 

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Google says it complies with the tax laws in all of the countries in which it operates.

Because of a loophole in international tax law, though, the company pays little tax in most European countries, reporting almost all its sales in Ireland, where its Dublin staff completes sales contracts, as Reuters explains.

The Silicon Valley company first became the target of an investigation in 2011. Back then French authorities conducted several searches of its Paris offices to collect information about possible tax evasion.

A hundred French officials were reported on the scene during Tuesday's 5 a.m. raid, as well as police and five financial prosecutors, according to The Local in France.

The raid comes amid increasing pressure from European authorities on US multinationals to pay their fair share of taxes. Authorities are also targeting Starbucks, Fiat Chrysler, Apple and Amazon.

McDonalds's French headquarters were also raided by authorities there on May 18. The fast food giant is said to owe $334 million worth of unpaid French taxes that were diverted through Luxembourg and Switzerland, according to Reuters.

It is estimated that up to $78 billion is lost in Europe annually through corporate tax avoidance. Globally, that adds up to $240 billion per year lost, reports CNN.