France plans 'Google tax' on Internet searches | Hacker News Reader

France plans 'Google tax' on Internet searches

telegraph.co.uk

20 pointsmtkd45 comments

The core problem with this scheme is one that's endemic to this sort of legislation. It's a basic assumption that economic interactions are all ultimately zero-sum, which is simply untrue. The idea that Google (or anyone else) must necessarily derive its success from somehow, somewhere screwing people denies the fact that the healthiest economies are packed with non-zero-sum interactions.

In Europe there is, due to the falling tax revenues, a debate about who should now carry the burden - which is temporarily being placed on high earners but that will ultimately reduce revenues even further as they flee to more accommodating jurisdictions.

It is an anomaly (in European eyes) that the most profitable businesses, particularly overseas technology businesses, are paying little or no tax currently.

I suspect these companies are going to become a target for tax on both sides of the Atlantic over the next two years as governments try to reduce deficits - there are not many other sectors making profit right now.

Taxation is also a tool to shape behavior.

Not sure how this relates to what karzeem has said. You're right, taxation can shape behaviour. So what do you suppose it's saying here? Let's tax and discourage a productive part of society - or at least a part that helps people get things done faster to subsidize an industry (that's already being protected and promoted by government) that people are not interested in enough to actually support with their own money?

Let's also not forget Quaero that the French tried to create as a counterbalance to supposedly American centric search for a total estimated amount of 293M Euros over 5 years! If the French government was that concerned about certain favored industries, why not just put their money there?

I simply said that because he said the motivation from this proposed tax stems from the misbelief of the zero sum game in wealth creation.

However, from the article it seems it is more a way to to stimulate certain behavior (i.e. cultural developments).

The president is said to have been made keenly aware of the problems illegal downloads pose musicians by his supermodel-turned-singer wife, Carla Bruni-Sarkozy.

This may explain why the French first lady's producer, Patrick Zelnik, was tasked with leading the commission, which came up with the proposals.

Wow, no conflict of interest there.

I'm constantly amazed that France's economy is as good as it is, given how much they love shooting themselves in the foot.

Indeed. Most of the US's growth in GDP versus say the Euro 15 countries for the past while has come from population growth. On a per-capita basis, the US doesn't seem to be reaping much of the supposed benefit of its allegedly pro-business system, though as you can tell I think there's a lot of meddling in the US system too, with what appears to be legalized bribery of government under a different name.

A blogger for The Economist had an interesting article today:

http://www.economist.com/blogs/democracyinamerica/2010/01_0

(On HN here: http://news.ycombinator.com/item?id=1038226 )

France's productivity per capita is, if not the highest in the world, in the top 3.

This will lead the way so they can start taxing BMW and Mercedes to revive buggy whip manufacturing. Truly visionary.

Haha, very much along the lines of what I was thinking.

Isn't the idea behind capitalism that good businesses succeed, while bad businesses fail? What happens when all of the bad businesses are propped up by government subsidies?

^sigh^ whatever happened to letting the market decide...

^sigh^ whatever happened to letting the market decide...

It was realised that it was not the most effective method to maintain profits for those established individuals and organisations that have the clout to influence government policy. Let's hope that one day this changes, but I'm not holding my breath.

I don't think we ever let the market decide EVERYTHING. See: airlines, military contractors, banks (before this crisis as well).

I'm not even sure we're in a period where this is more pervasive than usual. That said, I agree that in 99% of cases corporate welfare is a terrible idea.

The tax is to be levied irrespective of the (major) search engine used.

But the money is still being used to prop up a market that cannot support itself. If it was a vital service (like maybe a utility service) then I could understand. But we are talking about the music industry!

But why should search engines be able to escape paying taxes on their advertising revenues, while the music industry must pay taxes on their revenues?

You keep saying the same thing again and again. It's still not correct.

The companies that own the search engines are already paying tax on their advertising revenue. See other person's comment above.

But they're not paying tax in France, where, one can argue the advertising revenue originates as and when the user clicks on the ad since it is only then that the good is considered delivered (very different from traditional advertising).

One could argue that. But advertising is a product. If I sell a product to a person in France from my Canada based company, I do not have to pay taxes on that revenue in France.

Why should this case be any different.

Depends on where the sale is made (and in this case it would be hard to argue the sale is being made in Ireland, no?), and how residency is determined.

The origination of revenue concept, residency, etc. in tax law is continuously being tested, both by governments and by companies, in a tug of war.

Consider this case of affiliate advertising (which, although different in specifics from the French case, has the same tone and a similar legal path):

http://venturebeat.com/2009/04/24/california’s-proposed-“ama...

In particular, this bit: "Here’s how it would work: If you have a web-based business in California and collect revenue by showing out-of-state companies’ ads on your site, Bill AB178 will claim that both you and the businesses you advertise on your site have residence in California, and are therefore required to pay California sales tax. For example, say your Santa Monica-based web site shows banner ads for Amazon.com. With Bill AB178 in place, Amazon.com would be classified as a California-based business based on the fact that your business draws affiliate advertising sales revenue. Amazon would then be required to collect sales tax on all sales into California. The idea behind the bill is that California could force out-of-state retailers to collect and pay California sales taxes."

You can also read more about it here: http://www.amazon.com/gp/help/customer/display.html?nodeId=4...

He was talking about the "creative industries hurt by the digital revolution" being the ones propped up by this, not the poor search engines.

But isn't the dying industry paying taxes on their revenues while the poor search engines are not paying taxes on their advertising revenues?

Did you read the article?

What you're saying is analogous to saying our govt't taxing of telephone calls will lead to us reverting back sending smoke signals from Manhattan to DC, or using carrier pigeons.

I believe that the taxes on phone calls are to pay for the Spanish-American War and not to subsidize the smoke signal industry. If the taxes on phone calls were put into place and the revenues given to the smoke signal industry, then YES I emphatically say that the objective is to lead us back to smoke signals.

Who is the smoke signal industry in the French online advertising tax case?

I believe it is supposed to be content "producers" but this seems to be conflated with content distributors.

From the article: "This may explain why the French first lady's producer, Patrick Zelnik, was tasked with leading the commission, which came up with the proposals. One of these suggests taxing internet service providers to raise tens of millions of pounds for developing the online music business and other creative sectors. The funds would go towards financing schemes such as a government-subsidised digital subscription for 15 to 24-year-olds to download music cheaply to wean them off illegal piracy."

Methinks some sarcasm was embedded in the tone of the original comment here...

But I think his sarcasm is an extension of the snide tone in the article, while missing the major point (which the journalist actually made in the introduction before diving into the culture-maintainance mumbo jumbo) - i.e. one set of companies are paying taxes on their revenue, while another industry isn't.

Both companies are paying taxes on their income, it's just that Google, MS and Yahoo choose to derive their revenue in a country that is more friendly to their operations (Ireland). France wants to tax the action (the click) instead of income (the advertising which is purchased in Ireland).

IMHO France is putting up the digital piracy bogey man to satiate the content industry while also allowing it to pass a tax onto it's populace. Once people become used to the tax they will increase it and divert the profits elsewhere. Of course I can't prove because it involves future actions that may or may not take place and the intent may not currently be there.

The irony of it all is that the telephone example is an example of my point that gov'ts keep taxes around long after their initial reasons for existence have passed. Income tax being another great example. I think the debts of WW1 have long since been paid.

But that's my point - aren't they really deriving their advertising income as, when, and where a user clicks on an ad?

Google Ads are different from regular advertising since the revenue accrues at the time the user clicks and located where that transaction occurs, which is on the user's desktop (i.e. place of delivery).

Also in France we have a tax on CD-R, DVD-R, hard drives, mp3 players which is given to the music companies to compensate their losses from pirating (you pay that tax whether you pirate or not. And still haven't the right to pirate after paying it).

The ISP also give 1% of their income to those companies.

So yes I think taxing the search engines is the logical next step.

Wow. I remember reading something about that a while ago but I didn't realize it was that bad...

The next logical step is that the government forces you to listen to 4 hours of music a day, and pay for it, so that flagging creative industries are supported...

Aren't they just simply proposing to tax online advertising revenue? What's the big deal?

The big deal is that they're planning on using the money generated to support creative industries that are harmed by digital innovation. ie, the music industry.

But the music industry gets taxed on their revenue, no?

If so, shouldn't the search engines be taxed on their advertising revenues?

As per the comment above: they are already taxed on their advertising revenue.

But they don't get taxed in the jurisdiction where the revenue originates (as and when the user clicks on the ad).

Exactly the same way that if Amazon sells a product to someone in Africa, from their USA based website, Amazon do not have to pay taxes on that revenue in Africa.

The origination of revenue concept, residency, etc. in tax law is continuously being tested, both by governments and by companies, in a tug of war.

Consider this case of affiliate advertising (which, although different in specifics from the French case, has the same tone and a similar legal path):

http://venturebeat.com/2009/04/24/california’s-proposed-“ama...

You can also read more about it here: http://www.amazon.com/gp/help/customer/display.html?nodeId=4...

What you're saying is that if I click on an ad, and that click results in a company in a completely different country paying another company in another completely different country a certain sum of money, that my government should be able to tax that? There is no money entering or leaving France when a French person clicks on a Google ad. The French government has no business whatsoever trying to tax online advertising revenue that occurs due to transactions in other countries.

Aren't the ads displayed in a particular country from companies that operated in that country? When the user clicks on the ad the (French-based) company is charged by Google (i.e. the company advertising has now transacted, and according to tax origination principles, most likely that would be interpreted as having occurred in France).

See my other comments in this thread about the Amazon advertisers cases in California and New York, for a similar situation.

An additional and arbitrary tax. Google was given a tax break to locate in Eire and pays tax there, not France, so France want to tax them too..

Presumably it is expenditure of French companies being paid to Google Eire. But presumably the goods and services thus provided get taxed if they cross the border into France or if they originate in France then the French companies pay their usual tax on profits.

The justification for this is flimsy imho and is just a cash grab from a successful company. The European Common Market is being abused as far as I'm concerned.

What do you think will the IRS do if Google relocates its world HQ to Ireland, shifting its tax burden there and avoiding tax in the US?

I have no idea. How do they tax Microsoft for having Windows packaged in Mexico ?

This is a very interesting subject. Countries in the EU have competed to provide a better business environment to foreign companies. Eire has gone for the 10% corporation tax break. Other EU countries are threatening the companies with sanction. Witness the recent story concerning Google's UK tax bill:

http://www.timesonline.co.uk/tol/news/uk/article6122329.ece

Google avoids £100m UK tax "The website hailed as a ‘paragon’ is accused of adding to the public’s burden."

Google's advertising first, then Facebook's (er, pardon - Livre de Visage's), then Reddit's (LuLui's) self service ads.

To then dish it out to non-profitable ventures is astonishing, it's like the levy I had to pay on C60 tapes to save my programs, or the levy in some countries on blank CDs and DVDs that goes into the publishing pot.

Then again, I get money from the Lottery Fund and I've never bought a ticket so I should shut up :)

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