Google Norway does its best to avoid paying Norwegian taxes, but is this illegal?

The Norwegian newspaper Dagens Næringsliv reports today that Google does its best to avoid paying taxes to the Norwegian government.

Google Norway had an official turnover of NOK 33.6 million last year (US$ 6.2 mill). However, as Dagens Næringsliv points out, that is only a fraction of the unit’s real revenue.

Unnamed media companies estimate that Google sold pay per click text ads in Norway for NOK 200 million last year (approximately US$ 37 mill), and is expected to generate twice as much this year. Still, last year Google Norway paid only NOK 1.5 mill in taxes.

Google Ireland takes the money

How does Google do this?

According to Dagens Næringsliv the income is turned over to Google Ireland. It is Google Ireland that bills the Norwegian AdWords customers.

Google’s boss in Norway, Jan Grønbech, is not willing to comment upon this to Dagens Næringsliv.

The competitors are not amused

Google AdWords controls some 80 to 90 percent of the Norwegian pay per click text ad market. The main competitor is Schibsted, a company that owns Sesam, a search engine and portal powered by Fast Search and Transfer. Sesam is definitely loosing money at the moment.

Sesam feels that Google’s business model is unfair. CEO Arild Nilsen of Schibsted Søk AS (Schibsted Search) says to Dagens Næringsliv that they would love to do the same as Google: “However,” he says, “we wish to behave correctly vis-a-vis the Norwegian tax authorities.”

Assistant Director Nina Hognes in the Norwegian tax agency (Skattedirektoratet) says that they are looking at cross-border revenue streams, but is not willing to say anything about the practices of Google — yet.

An effect of the global nature of the Web

As a matter of fact, this case of serious globalization is even more complex than the presentation given by Dagens Næringsliv may indicate.

When signing up for an AdWords account anywhere in the world you may ask for your ads to appear in any territory, region, country or language. Hence you may select to have your ads presented at Google sites in Norway and Denmark and not — let’s say — in the US or the UK.

Does this mean that Google in this case should be taxed by both Danish and Norwegian authorities? That would make this kind of trade extremely complicated.

If you on the other hand was selling cars in Norway and Denmark, you would definitely have to pay local taxes.

We are neither lawyers nor tax experts and are glad to leave this conundrum to the professionals.