Google Tax Hits Italy

12/24/13 10:10AM EST

Google Tax Hits Italy Google Tax Hits Italy

Image via Flickr/ Kristina Alexanderson

Italy has changed its law regarding online advertising, proving that Google Inc (NASDAQ:GOOG) is not immune from efforts to force it to pay more tax. the new law will force Italian companies to buy advertising from companies registered in Italy. That means that Google’s major ad businesses, which are based in Ireland and Bermuda, will not be able to collect checks from Italian companies.

At the moment most of Google European business goes through subsidiaries in Ireland and the Netherlands. Due to tax arrangements in those countries, Google pays very little tax in Europe. Cash-strapped countries in the European Union have been trying to force the firm to pay a bigger part of its tax obligation in Italy.

Italian tax changes hit Google

The new law, which was passed by Italy’s parliament, may not ever be enforced. Some analysts have said that the measure is in clear violation of EU law. The political and economic union has clear laws designed to protect free trade across geographical bounds. The OECD is currently creating a plan to help combat the tax strategies of the world’s biggest companies.

The legislation may be challenged, and it may disappear under the weight of the European Commission, but it is still important. There is a growing dissatisfaction with the way Google, and other companies like it, pay their taxes. The Italian legislation is a warning shot. The country is serious about challenging Google’s tax policies and it is demonstrating it through legislation.

Google looking at tax battles in 2014

Tax battles are bound to become a bigger an bigger part of Google Inc (NASDAQ:GOOG) problems as the company continues to expand and the money that governments are losing out on looks bigger and bigger on paper. Google is, of course, not the only company that has been targeted for paying its tax in Ireland rather than in the country where it sells its products.

Apple Inc. (NASDAQ:AAPL) was the target of the most prominent tax related news story this year. The company’s CEO Time Cook ended up in front of a Congressional hearing on its payment of tax in Ireland, but no effort was made to make the company pay more of its tax in the United States. European companies no longer have the luxury of forgoing tax that they feel is owed to them, and Google is just the first to feel the pressure.

2014 may be a year of tax challenges in Europe, and if they’re successful they may be followed by challenges from the rest of the world. Tax-dodging corporate greed are a well worn narrative, but it’s rare that anything is done about them. If the Italian and fresh efforts to combat tax aversion by Google and Apple are successful, tax legislation may dominate tax in 2014.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.