By Michel Rose and Chine Labbé
PARIS (Reuters) - Dozens of French police raided Google's (GOOGL.O) Paris headquarters on Tuesday, escalating an investigation into the digital giant on suspicion of tax evasion.
Google, which said it was fully complying with French law, is under pressure across Europe from public opinion and governments angry at the way multinationals exploit their presence around the world to minimize the tax they pay.
Investigators from the financial prosecutors office and France's central office against corruption and tax fraud, accompanied by 25 IT specialists, took part in the raid.
"The investigation aims to verify whether Google Ireland Ltd has a permanent base in France and if, by not declaring parts of its activities carried out in France, it failed its fiscal obligations, including on corporate tax and value added tax," the prosecutor's office said in statement.
Google, now part of Alphabet Inc, pays little tax in most European countries because it reports almost all sales in Ireland. This is possible thanks to a loophole in international tax law but it hinges on staff in Dublin concluding all sales contracts.
If staff in countries like France finalize contracts with local clients, then the company would be obliged to report the revenues nationally and pay taxes in each country.
Al Verney, a spokesman for Google in Europe, said in an email: "We are cooperating with the authorities to answer their questions. We comply fully with French law."
Alphabet Executive Chairman Eric Schmidt, approached for a reaction at a conference in Amsterdam, declined to comment.
Tuesday's raid was carried out as part of an investigation into aggravated tax fraud and the organized laundering of the proceeds of tax fraud. The probe, triggered by a complaint by the French tax authorities, started in June last year but was only made public on Tuesday.
"This is a heavy operation," the judicial source said, referring to how many people took part in the raid. "It's quite an unusual one."
Should it be found guilty, Google faces either up to 10 million euros ($11.14 million) in fines or a fine of half of the value of the laundered amount involved.
Budget Minister Christian Eckert, who declined to confirm or deny the sums involved in the Google case on Public Senat television, said France had raked in 3.3 billion euros in back taxes and penalties from just five multinationals in 2015.
Separately, French tax authorities are seeking some 1.6 billion euros ($1.8 billion) in back taxes from Google, a finance ministry source said in February.
It wasn't clear to what extent the judicial investigation made public on Tuesday was related to the tax authorities' case or was part of a larger probe into Google's tax practices.
A Reuters investigation in 2013 found that while Google said it didn’t sell in countries like Britain and France, it advertised "sales" jobs in London and Paris which it said would involve "negotiating deals" and meeting "sales quotas". (http://reut.rs/1RnJZe2)
The group agreed in January to pay 130 million pounds in back taxes to Britain, prompting criticism from opposition lawmakers and campaigners that the sum was too low.
According to the last available statutory financial filing, Google France posted a profit of about 12.2 million euros on revenues of 225.4 million euros ($251.14 million)in 2014 and employed 534 people in the country.
Parent company Alphabet posted net profits of $14.1 billion in 2014 on revenues of $66 billion and had a total headcount of 53,600.
(Reporting by Michel Rose, Chine Labbe, Ingrid Melander, Mathieu Rosemain and Gwenaelle Brazic in Paris, Svebor Kranjc in Amsterdam, Tom Bergin in London, Peter Henderson in San Francisco; Writing by Ingrid Melander; Editing by Andrew Callus and Tom Heneghan)