In times of Economic Crisis there is a focus on both the cost side and the income side of a Nation’s Budget. On the cost side most European countries are applying austerity policies to reduce the spending and the Budget Deficits. On the income side, with the absence of significant growth, legislators are constantly looking for new forms of taxation.
In recent times, the focus has been on the Stars. Many French celebrities have moved their fiscal domicile outside of the country with places like Switzerland, Belgium and Monaco representing close-by and easy choices for fiscal optimization. Legislators have proposed to penalize this behavior and in the case of Sports Stars, ideas have been circulating about the very right to participate in National Teams for the Sports Stars who moved their fiscal domiciliation to another country. The new President’s plans to set a 75% tax on very high incomes is further making the Stars tremble. Interestingly, at the time of writing, the US presidential candidate Mitt Romney seems to be attacked on similar aspects of Morality: can an American President decently have a Swiss bank account? Can a National Champion justifiably not pay taxes to that Nation?
And now to the Business Stars. Google, Apple, Facebook and Amazon are the biggest International Internet Stars in France and the newest tax invention has been nicknamed after the first among them: the “Google Tax“. Google have established their European Financial Headquarters in Ireland and invoice clients in France and in the rest of Europe from that entity. There is no additional tax on the media buy as that money leaves the country and French legislators are arguing that Google and other Internet players are not contributing sufficiently to the National economy they are operating in comparing to the benefits they gain. There is actually a French tax investigation under way examining whether Google France have paid sufficient levels of Corporate tax as well as Value Added Tax. More on Google vs French regulators in this article from the Guardian.
But the “Google Tax” is slightly apart from the individual cases under examination. It intends to attack the problem in a more systemic way so that the media buy itself is subject to an additional tax.
The first version of the tax from end 2010 would simply punctuate 1% of all the media buys directly in the country. Officially this proposed tax was abandoned during 2011 because it only affected advertisers based in France and not those based abroad. It would be harder to be French ecommerce selling to France than Ecommerce abroad selling to France… not good.
The new version of the tax, call it Google Tax II, would be applied to the networks selling advertising – based or not in France – at a rate of 0,5% up to 20 million and 1% of net media over that level. The details of the proposal is published by the Senat: http://www.senat.fr/presse/cp20120627c.html [in French] and includes additional initiatives.
According to the respected online journal, Journaldunet.com in a recent article [in French], both the IAB, the union of advertisers, UDA, and the branch of Advertising Networks, SRI, are strongly opposing this initiative. It may seem straight forward to be taxing ecommerce and advertising but it is certain to handicap French ecommerce. IAB argue that the entire internet ecosystem is based on advertising and that additional charges will weaken its growth potential.
The French often refer to one of Aesop’s fables: “tuer la poule aux oeufs d’or”, they say, referring to “killing the Hen with the Golden eggs”. Unilaterally taxing French advertising networks would have an impact on French ecommerce and make it harder to sustain growth. Sure, growth is close to 20% per year but more surely, France is way behind in ecommerce compared to the anglosaxon leaders of that game. Don not chop that Hen’s head off, I would say – the Rooster being considered as the national symbol for France we might as well avoid a Family Fight among the Fowls.
Anders Hjorth
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Thanks for your comment Laurent, and some really great points!
There was an article in Les Echos this morning saying the 4 Internet Giants: GAFA, Google, Amazon, Facebook and Apple pay 4 million euros taxes on 3 billion revenue per year. That would be some 0,13% of their revenue. That is just about the lowest Corporate Tax rate I have ever seen, especially for companies generating considerable profits.
So, don’t get me wrong – I totally agree that this is not an acceptable situation moving forward and it needs to be addressed!! These guys need to be taxed in France as well as in other European countries on the revenue and benefits they generate there just like any other company.
So what I do not agree with is the way this is being addressed. Fine, sue them, analyze their accounts, make them pay taxes on their revenues. But don’t penalize the entire ecommerce system in France to pay for the holes in international tax regulations! Ecommerce players are not always hugely profitable companies – a lot of them are start-ups, individual initiatives taken at great risk. Ecommerce does not pay the type of salaries you see in established sectors of the economy. Perhaps we should consider taxing financial transactions which have worsened our Economic Crisis rather than taxing Ecommerce which is one of the few areas of real growth for coming years!
So, I sincerely believe the Internet Ecosystem is fragile and if you put a 1% tax on all internet advertising, are you sure it is going to be the GAFA guys who pay in the end? Don’t you think it could very possibly be the Ecommerce players like yourself who will have to pay the bill? I know for certain that a number of our clients will simply integrate an additional cost in their cost acquisition equation and it will harm my agency’s revenue much more than it will hurt Google or Facebook!
Now to your point on ecommerce compared to other countries, in the figures I have seen and started to compare simply between France, UK and Germany I see France lagging behind. We published an article last month most concerned with the Growth Potential for Search Marketing in France.
http://blog.webcertain.com/huge-growth-potential-for-search-marketing-in-france/19/06/2012/
Internet advertising is way behind and one of the reasons is in direct relation with the size of the ecommerce sector.
France, UK and Germany have similar sized online population – all the data I have seen is indicating that ecommerce is much smaller in France compared to the other two. Pursuing similar tracks to UK, US or Germany or not, I think we can agree to measure the size of the sector on the basis of revenue. Well, innovation or not, revenue is not there…. yet! So add an advertising tax on top and I think you will see this rather fragile (but very dynamic sector, I agree!) grow much more slowly than otherwise.
Finally, you mention this as a small tax. In our agency here in France (yes, I am based in Paris and have been apart of the Frech Internet sector since it’s beginning) we run a lot of Performance-based campaigns. Performance is calculated as Sales – cost of goods – cost of promotion (advertising) = revenue. As a Performance oriented agency, in some cases we are paid according to this equation. The revenue part could be down to less than 10% of costs here. Your 1% out of 10% is no longer such an insignificant number!
Thanks again for all your comments and I will make sure to take the question about the Size of Ecommerce in France to further analysis and make it the subject of a Future article in this blog!!
Best regards,
Anders
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hi Anders,
I’m a french web project manager former ECommerce business owner. Your post is really interesting.
Nevertheless, when you reffer to the “killing the Hen with the golden eggs” fable, I’d like to open the debate a little ;
As far as I know, I think today, Emerchants are the hens with golden eggs for Google mainly … not for the french state … And I beleive that what is killing these hens is Google’s heavily dominating and ‘unavoidable’ position and the costs they charge for advertising.
So at the end, I beleive it’s fair that a these costs are a bit taxed. I don’t beleive such a light tax will jeopardize the french ecommerce/advertising health. But instead, it will bring the french state resources to stimulate economy in general … We cannot count on Google for this can we ?
When IAB says the entire internet ecosystem is based on advertising … I do think they exagerate a lot … The internet ecosystem is also based on innovation, quality of services, customer relationship … Don’t worry french internet advertising won’t die because of such a tax.
Last, when you say France is “way behind in ecommerce compared to the anglosaxons leaders …”, well you need to understand that in France, our goal isn’t always to follow anglosaxons tracks … We are certainly smaller in terms of dimension/weight, but when I see the quality of many french ecommerce websites (design, functionnality, ergonomy security of payments, customer service …) compared to US or UK websites, I’m not certain we’re still behind.
Size doesn’t always matter. 😉
best regards