French tax inspectors search Microsoft offices in dawn raid

IDG News Service - French tax authorities have visited the headquarters of Microsoft France to conduct an inspection, a spokesman for the company confirmed Wednesday.

The visit, last Thursday, was a routine check, according to a statement on the company's website.

"We confirm that on June 28 an inspection by tax authorities took place at the headquarters of Microsoft France in Issy-les-Moulineaux. This was part of a routine check and, as for any administrative or tax procedure, we remain at the disposal of the authorities," said the statement.

The check involved 67 tax inspectors accompanied by 30 police officers, and lasted from dawn to well into the night, according to a report in French investigative newspaper Le Canard EnchainA(c), published Wednesday.

The inspectors came from a number of agencies, including the National Directorate of Tax Investigations, responsible for detecting tax evasion, and the Brigade for the Verification of Computerized Accounts, according to the newspaper report.

Nicolas Vanbremeersch, of Microsoft's public relations company Spintank, said Wednesday that the company had no comment to make on the number of inspectors involved, or the duration of the inspection.

The investigation began just over a year ago, according to Le Canard EnchainA(c), when tax inspectors visiting a French gaming company discovered invoices from Irish and U.S. subsidiaries of Microsoft for advertising and commercial services allegedly performed in France by employees of French subsidiaries.

Microsoft is not alone among IT companies in facing such allegations. Google France received a visit from tax inspectors a little over a year ago, and the company is now working with the authorities to answer their questions, a spokeswoman said Wednesday. In March, French media reported that Google France could face a value-added tax bill of up to a!100 million (US$125 million) for services allegedly billed through its Irish subsidiary but performed by its French subsidiary.

Such maneuvers allow service providers to avoid French corporation tax of 33.33 percent, paying instead the Irish corporation tax rate of just 12.5 percent, or even lower rates in some U.S. states.

The tax raid is not the only thing to have disturbed the peace at Microsoft's French subsidiary in the last week.

Early on Monday, it announced its first ever lay-offs: It will cut 30 posts in its advertising and online divisions. The company's advertising activities took a bigger hit Monday, when Microsoft announced that it would reduce the book value of its online services division by $6.2 billion, due largely to the poor performance of aQuantive, an online advertising company it acquired for $6.3 billion in 2007.

Later Monday, Microsoft announced the promotion of the head of Microsoft France, Eric Boustouller, to a newly created post as Corporate Vice President for Western Europe, where he will be responsible for the company's activities in fourteen countries. He will report to Jean-Philippe Courtois, Microsoft's President of International.

Boustouller is replaced as head of Microsoft France by Alain Crozier, previously CFO for Microsoft's worldwide sales, marketing and services group with responsibility for over 100 countries. Crozier, too, will report to Courtois.

Microsoft typically announces such staff changes at the end of its fiscal year, said Vanbremeersch, adding that there was absolutely no link between the announcements and the tax inspection.

Peter Sayer covers open source software, European intellectual property legislation and general technology breaking news for IDG News Service. Send comments and news tips to Peter at peter_sayer@idg.com.