Google Searches for Way Out of EU Fines

Michael Gentile, Editor-in-Chief, JHU

 

An investigation of 1.7 billion Google Search queries found that, on average, the sales listings of Google Shopping’s competitors did not appear until the fourth page. In June, Margrethe Vestager and the European Union fined the world’s highest traffic website provider $2.8B and gave them 90 days to separate Search from Shopping. That grace period ended Thursday. If you’re an average user, you’ve spent about forty minutes on www.google.com since then; have you noticed any difference?

Google has responded by offering the ten ad slots, which pop up directly below the search bar and recommend Google Shopping products, at auction to its competitors. Google can bid, but only above a floor that ensures their revenue from the searches, which allow customers to browse these slots, won’t by themselves subsidize the cost to hold them; they also have to mark their products clearly. This is Google’s offer.

Unless Margrethe Vestager, the European Commissioner of Competition, feels that Google has evened the playing field, she will claim 5% of Google’s daily revenue every day until they have. Sure, only European revenue; about one-third of all! These losses pale to those of net income, which Google has claimed disproportionally in Ireland and the Netherlands.

They call it the Double Irish, Dutch Sandwich. It’s a complex sandwich but essentially, in 2015, Google filed $15.5B of foreign advertising profits into a subsidiary named Google Ireland Limited and, from there, sent them to a Dutch intermediary. Then, a Bermudan company known as Google Ireland Holdings Unlimited, with the right to license Google intellectual property but not a single employee, sheltered the money.

No one will save $3.6B on a tax bill again—except maybe Google. Though the Irish government later closed the loopholes related to this strategy, companies already in the loop can remain so until 2020. In short, the Irish missed one.

So Apple will pay, right? $13.6B in underpaid taxes, delivered on a silver platter by the EU in 2016—and Ireland turned it down. Out of fear that collection would dissuade other tech companies from their low corporate tax rates, the Irish government has stalled the EU’s case against Apple’s appeal.

Apple’s CEO Tim Cook has criticized the EU’s intentions as “total political crap.” Former President Barack Obama seemed flattered: “[Americans] have owned the Internet. Our companies have created it, expanded it, perfected it in ways that [European companies] can’t compete. And oftentimes what is portrayed as high-minded positions on issues sometimes is just designed to carve out some of their commercial interests.”

Albeit, the EU’s commercial interests are in uncharted territory. The world’s six largest companies, by stock value, are all in the technology industry and none of them are European. Moreover, cyberfirms confound regulators. What’s the difference between an American click on a Dutch server and an Irish click on an Indian server? Is the process to visit www.bing.com anymore difficult than the one to visit www.google.com? Do lower case letters harm consumers? Can searches, run through proprietary code, ever result “organically,” as the EU demands?

These questions are problematic, considering that the EU needs approval from all 28 of its members to reform a footnote of its tax or antitrust codes. As shown, some countries prize their tax haven status and see shadows of doubt in Emmanuel Macron’s apportionment strategy.

Following his election as France’s Prime Minister, Marcon has argued that corporations must claim taxable profits in proportion to the amount of revenue produced in a certain country. For instance, if Google only accrues 5% of its revenue in Ireland, determined by it can only claim 5% of its profits there—not $15.5B. Revenue is counted, rather than accounted, and far easier to standardize and track.

While the measure may finally reign in web companies with few material expenses, it’d punish those who’d come before them, the manufacturing and retail businesses whose profits margins have been exhausted by centuries of competition. Marcon’s impact would vary based on the industry makeup of specific members, enough so to sink the vote. Nonetheless, certain figures—not excluding $3.6B and $13.6B—deem it worth the try.

Even $2.8B, to return to Margarethe Vestager’s antitrust case, may lowball what is reasonable. Last year, Google Shopping’s product listings accounted for more than half of all clicks pertaining to online retail searches; ad spending rose 32%. As Google develops its power to fulfill requests more directly, Google’s dominance as the web’s foremost explorer will endow them with an unmatchable advantage in any area they venture into.

That said, Google might be underestimating precedent. In 2000, a US District Court ordered Microsoft to separate the production of its operating system from its software components, namely Internet Explorer, contending that Windows denied its customers access to competing web browsers. Eight years of appeal weren’t enough to convince regulators that Microsoft was just any ole company.

Pending the amount of Google apps on your phone, you’d be wise to believe that Google wasn’t either. They’ve won, and we’ve forgotten who lost. Yet, by biasing what many people stand by as the means to obtain the best information, Google limits our understanding of the options that exist within our global marketplace of both products and opinions. And by tolerating the private corruption of everyday information and choice so that tax-haven countries can claim an extra percentage point of GDP, the European Union risks the lack of credibility that’s hurt the US’s reputation of late.

The average American visits www.facebook.com, www.amazon.com, www.netflix.com, or www.google.com 28 different times a day. These so-called FANG stocks are up a combined 108.4% so far in 2017, compared to a 7.6% increase in the S&P 500, which proxies the overall American market. European exchanges have performed much better, despite their lack of such behemoths, and have brought to light the relative competitiveness of European markets.

In this light, the EU might be right to defend its egalitarian corporate structure and shoo Google from its doorstep. Unlike America’s, Europe’s recent growth has been broad across and within individual sectors. Refusing to be cowed by the economic scale of Google will not only underscore Europe’s recovery, but both mitigate and profit from the influence that private companies exert on its citizens. Populist movements in France, Britain, and Germany may even cheer this stance against big business.

Though Google may be ‘feeling lucky,’ by no means will $2.8B solve their problems. The EU’s investigation not only loses Google some easy sales, but opens the door for sites that compete with Google Shopping to sue as well.

Bear in mind that Google just turned 19 years old. Adulthood can be tough sometimes; there’s no saying it’ll ever get easier.

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