The French Senate has approved a new tax on online advertising services offered by Internet giants such as Google. But critics say the plan misses the point and burdens domestic companies instead.
As online advertising continues to grow rapidly throughout Europe, French senators this week approved a new tax law aimed at securing the government to a piece of the revenue pie.
Although the measure is popularly known as the "Google Tax", it does not directly impact the Internet giant, which has based its advertising business offshore and out of reach of French tax collectors. Instead, the one-percent charge will be levied on all French-based companies purchasing online publicity services.
The measure is expected to become law in 2011 and generate between 10 and 20 million euros per year if it is passed by the National Assembly, as predicted.
Supporters of the tax say it will put online advertising on an equality footing with other media. Broadcast and print advertisements are already subject to taxation in France. Television advertising alone pumps roughly 70 million euros into government coffers annually.
But critics say the government's plan fails to meet its original goal: to tax the French operations of internet giants such as Google, Microsoft, eBay and Amazon, which are located strategically in European countries with low corporate tax rates, such as Ireland and Luxembourg.
French business leaders fear the measure will burden small advertisers and lead to an exodus of larger internet stakeholders from France.
The original goal of the levy was to tax offshore Internet giants' profits
According to iab Europe – an umbrella organization representing national trade associations for digital and interactive marketing – France's online advertising market is Europe's third largest after the United Kingdom and Germany. In 2009, the UK market was worth 4 billion euros, the German market worth 3 billion, and the French market worth 1.7 billion.
Kimon Zorbas, Vice President of iab Europe, says the proposed law is shortsighted in that it hits French companies while giving their foreign competitors a break.
"Our position is that this is a market which is already less than half the size of the English market. France has a lot of catching up to do, and such a tax on a developing market is doubly negative," he told Deutsche Welle.
"Any tax is bound to have an effect on the market. Naturally the question now is how big of an effect, and that's something we can't yet know."
Pattern of intervention
Recently, a distinctly French approach to the economic and cultural challenges presented by the Internet has emerged.
In October the country announced a subsidy system under which young people can buy partially subsidized cards to purchase and download music with. The program is intended to encourage the legal downloading of music over Internet piracy.
It has also begun to send piracy warnings via email to illegal file sharers.
And in November France extended its 1981 Lang Law – which lets publishers set book prices and forbids booksellers from giving more than a 5 percent discount – to apply to e-books.
President Sarkozy's government has been grappling with Internet issues
Karin von Abrams, a London-based analyst for eMarketer, tracks the French market and says that while governments are generally "very wary of hindering" the growth of online markets, it's not surprising that France would seek to tax them.
"France has a history of very deliberate federal supervision of – and sometimes intervention in – the media," she told Deutsche Welle.
"They also have a very strong history of federal subsidies for culture… they see inequalities developing, and are perhaps more likely to intervene because of their historical attitudes in this respect."
Zorbas added that specialized national taxes could create disunity among European nations trying to increase their combined market share, and that attempts to create boundaries in the Internet "just can't work out."
Author: Gerhard Schneibel
Editor: Sam Edmonds