Sarkozy Proposes Tax on Google Ad Revenue and other Web Firms     Print Email

Idea Google being Demonized in France as “Great Satan” of Web Hegemony

French President Nicolas Sarkozy has made it official that he intends to tax foreign internet companies on their online sales in France, an initiative colloquially referred to as “The Google Tax.”
The idea -- the latest in a series of legal and political moves against Google's activities in France -- proposes to tax advertising revenues from online giants such as Google to support the creative industries in France hit by the digital revolution. But critics say it is unworkable, perhaps even counter-productive and could at best simply prop up failing business models.

Sarkozy has repeatedly sought to present himself as a defender of France’s cultural heritage and performing arts from new digital-age threats: for example, his government has imposed some of world’s strongest anti-piracy and pro-copyright laws.

But the proposed tax is seen by many as less about combating illegal practices and more about protecting French cultural properties from the U.S. web behemoths. The link to “the arts” is still murky, but seems to center on a plan to use the revenues from taxing web transactions as a fund for cultural subsidies.

The French government seems to be scoring some initial success with its new sanctions against individuals engaged in illegally downloading music and movies – essentially by cutting off internet service to those caught as repeat offenders (“three strikes and you’re out!”). Initially controversial, the French law has been copied in Spain, and Britain is considering a similar move. On this issue, Google is not involved in facilitating online piracy, but it is often depicted by French officials as an ally of “outlaws” because of its basic corporate creed that the internet should be “free.”

Sarkozy's latest offensive against Google has come under criticism by many in the digital industry and, perhaps more surprisingly, from the French public.

The concept of the new tax on Google is the following. Google is one of the biggest media players in the French market: the small text ads on its search engine generated an estimated revenue of €800 million ($1.2 billion) in 2008 and €200 million in profit for the French operation alone.

As a global company, Google optimizes its tax strategy; since France is afflicted with one of the highest corporate tax rates in Europe (34.4 percent), most companies choose to avoid declaring too much revenue here. So, Frederic Filoux in his article Vive Le Google Tax! writes, “Google predictably leaves only about five percent (€40 million) to the French tax system; the bulk of its profit is filed in Ireland, where the tax rate is set at 12.5 percent. These practices, although legal, lay the grounds for all sorts of criticism.”

Not only does Google suck up about 40 percent of the French internet advertising market, but its dominant huge position does not really benefit the French Treasury. The same logic applies to other U.S. giants: MSN, Yahoo, Facebook, AOL, and Microsoft.

The companies would collectively be taxed up to €20 million per year from advertising revenues: every time an ad or sponsored link is clicked by a French internet user, one to two percent of the revenue earned by Google would go to the French government. French skeptics say such a tax is out of touch with digital market realities; Google has said that it could “slow down innovation.” Many critics contend that it is an illogical stretch to try connecting Google’s advertising revenues on net searches to protection of French intellectual property.

Some analysts have branded the potential tax as a continuation of an outdated French protectionist tradition. Writing in Le Monde newspaper, Pierre Briancon said this “tax and subsidize” idea sounded antiquated, even “naïve,” in an era of globalized communications. The French government would be smarter, he said, to encourage and not hinder the shift to online advertising. Given the size of France’s budget deficit, “the government has to find money somewhere, but striking out at Google, Yahoo and “other Microsofts” with a custom-tailored tax is not only a protectionist measure – it is also a defeatist act,” he said.

This latest sally is another episode in a long-running Google-Sarkozy feud in which the Elysee seeks to cast the brash Net 2.0 pioneer company as a cultural imperialist threatening France’s role as a global leader in the arts. In Paris, Google seems to have become a scapegoat for French fears about U.S. high-tech companies’ attempts to dominate an international marketplace in digital propagation of books, music and movies.

Google itself has sometimes been less than adept in introducing itself into other cultures, and it seems to have encountered especially strong opposition in France. But even there, attitudes are divided about whether the country can afford to keep Google at arm’s length, especially in digitizing out-of-print French books, a task which France may not have the resources to tackle without the U.S. company’s help.

In the latest clash, French critics of the Sarkozy plan point to the fact that the reports’ authors “are not exactly hardly digital front-runners,” says Filoux. One of the authors, Patrick Zelnik, a music producer whose record label handles the songs of French first lady Carla Bruni-Sarkozy, is an industry figure who, according to Filoux, “brilliantly missed the digital train.” While his position may make him directly aware of the problems of contemporary popular music, he could also stand to benefit from any new subsidy generated by taxing internet sales.

Although Google is not a vehicle for illegal downloads or peer-to-peer file-sharing from the web, it is often lumped in with this threat, apparently because of Google’s well-publicized philosophy that everything on the internet should be free. (And, of course, Google’s search engine can be partially “blamed” for some trends that are decimating newspaper readership.)

Psychologically, this blurred image of Google helps Paris depict the California-based company as part of the new wave of web activity feared by many Europeans, especially the French, as a threat to their national cultural vigor. In his piece, Briancon suggested that the French authorities are demonizing Google in a way similar to the technique of the Iranian authorities in depicting the United States as a “Great Satan” – a comparison with the Iranian mullahs who use the image to mobilize anti-American paranoia among Iranians.

So far, there are few signs that this French hostility to Google might spread to other states in the EU.

By Basil Maudave