By Leila Abboud and Tom Bergin
PARIS/LONDON (Reuters) - Google
The weekly Canard Enchaine said in an unsourced report that the French Tax Administration was looking into whether Google's practice of charging French advertisers via its European headquarters in Ireland led it to underpay taxes in France.
European Union rules on freedom of trade within the bloc generally allow firms to freely sell into one EU market from another.
The newspaper said the French Tax Administration had sent a letter to Google, notifying it of the claim, but a spokeswoman for Google France denied this.
"Google has not received any tax assessment from the French tax administration," she said. She acknowledged the company was in talks with the taxman about its affairs but declined to give details.
The newspaper could not be reached for comment on Wednesday, but did not amend or retract the story which first appeared on Tuesday.
The French tax authority usually issues at least one preliminary assessment before issuing a final assessment, which can be the subject of litigation if not accepted, tax advisers say.
"We have and will continue to cooperate with the authorities in France. Google complies with tax law in every country in which the company operates and with European laws," the spokeswoman added.
Google paid income taxes of just 3.2 percent on non-U.S.income of $7.6 billion last year, its annual report showed.
The company had an income tax bill on $4.7 billion of U.S. income equal to 43 percent.
Calls and emails to the group's U.S. headquarters were not returned.
The tax authority and a government spokesperson declined to comment on the matter, following common practice of respecting taxpayer confidentiality.
The company said in its annual report for 2011 that it was under examination by the U.S. Internal Revenue Service and "various other tax authorities". It did not give details. The IRS declined to comment on Wednesday.
Corporate tax avoidance has become a hot topic internationally as governments struggle with large deficits following the banking crisis.
Tax campaigners say international technology groups are among the most aggressive at shifting income into low tax jurisdictions to avoid income taxes.
Last month, a U.S. senate investigation criticised Google and Microsoft
Google France reported sales of 68.7 mln euros in 2010, the most recent period for which accounts are available. In that year, the company paid French income taxes of 2.0 million euros, on its 4.4 million euros income.
Google earns revenue from selling space on its search engine to advertisers. European units in France, and elsewhere, are usually designated as support centres for its Irish operation, which actually bills advertisers, according to company statements.
Ireland's corporate tax rate of 12.5 percent is around half the average rate in the European Union.
In a separate development, French President Francois Hollande told Google's chief executive Eric Schmidt on Monday that France would legislate to force the web search engine to pay for displaying links to news articles unless Google struck a deal with French media outlets.