France is in talks with Google over an ongoing tax audit and payment of back taxes, the country's budget minister said on Tuesday, adding the administration had "convincing" proof to back up its claims.
Tax authorities are examining whether Google's practice of charging French
advertisers via its European headquarters in Ireland led it to underpay taxes in France.
Jerome Cahuzac said the company has been asked to regularise its tax affairs, adding that if talks fail the issue could go to court.
Cahuzac was speaking at a press conference on fiscal fraud in which he referred to the Google situation without citing the company by name, instead referring to a "search engine."
European Union rules on freedom of trade within the bloc generally allow firms to freely sell into one EU market from another.
Key to proving that Google should pay more taxes in France would be to show that enough work is done by French staff on French soil to merit that more of the revenues and profits be declared in the country, according to tax experts who are not involved in the Google case.
Without giving specifics, Cahuzac said that "evidence shows a business activity based in France that is uncontestable."
Google, the world's No 1 Internet search engine, has been investigated by the French tax authority since June 30, 2011 when its three offices in Paris were searched and computers and documents seized, according to court documents reviewed by Reuters.
Google sought to have the results of the searches thrown out, arguing that the tax authorities misrepresented themselves, but a court ruled against the search engine in August 2012.
Earlier this month, satirical weekly Le Canard Enchaine reported without citing sources that the government had demanded 1 billion euros ($1.28 billion) in back taxes from the company. It later reported that the back taxes could be up to 1.7 billion euros, again without citing sources.
Google has denied repeatedly that it had received such a tax claim from the French authorities.
"Google conforms with the tax laws in all the countries where the company operates," said a spokeswoman in an emailed statement on Tuesday.
"We co-operate with local authorities and we work with them to answer their questions about Google France and our services."
Google France reported sales of 68.7 million euros in 2010, the most recent period for which accounts are available. In that year, the company paid French income taxes of 2 million euros on its 4.4 million euros of income.
France, along with Britain and Germany, are intensifying efforts to clamp down on loopholes that allow big international companies to minimize their tax bills.
Last week, government spokeswoman Najat Vallaud-Belkacem told reporters France was discussing ways to tax internet companies both at the national and international levels.
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