France studies new tax
measures on web giants
By Leila Abboud
PARIS | Fri Jan 18, 2013
12:26pm EST
(Reuters) - France plans
to study different measures to collect more tax from global Internet companies,
including a new type of levy on the personal data of web surfers that the likes
of Google and Facebook use to make money.
In a 150-page report
commissioned by the government of Socialist President Francois Hollande in
July, two experts laid out a series of recommendations for measures at the
national and international level to limit technology companies' ability to
avoid tax legally.
The government said it
would now evaluate the feasibility of the various policies with the aim of
proposing a law by year-end to modify how global Internet companies are taxed
in France. It added that France would work with countries in the G20, the OECD
and the European Union to adapt international tax regimes to the "new
reality of the Internet economy".
"This report exposes
the off-shoring of profits that is practiced by some companies in the new
economy, which will only grow if nothing is done to tax their activities in
France," four French ministers said in a joint statement.
Tax experts said France
may find - just as it did with its attempt to impose a 75 percent income tax
rate on millionaires - that it is difficult to devise a tax that targets only
those it wants to but which a court does not find discriminatory.
Corporate tax avoidance
has become a hot topic internationally as governments struggle with large
deficits in the wake of the banking crisis.
France's planned
legislation is in line with a push by Britain and Germany, who want the G20
group of nations to make multinational companies pay their "fair
share" of taxes, following reports of large firms exploiting loopholes to
shift taxation of their income away from where it is generated.
Australia released draft
revisions to tax laws in November designed to stop tech firms from shifting
their income to low-tax countries.
In France, among the
report's measures is a call for France to work with other countries within the
G20 and international organizations to refine the definition of where companies
are based for tax purposes, so as to curtail venue shopping for lower tax
rates.
A new system of taxation
should also be devised, the report argues, that allows individual countries to
tax multinationals even when they are not based in the country, basing levies
on the contribution of local residents' data to profits.
For example, if Facebook
makes money from advertising sold based on user data from French citizens, then
it should have to pay local tax on those profits.
LEGAL CHALLENGE?
"The major question
is how do you localize the profits of big Internet companies and attach them to
the country where they were generated?" Fleur Pellerin, deputy minister
for the digital economy and small business at the Finance Ministry, said.
"Tracking the
collection and usage of personal data is one of the approaches we are exploring
but it isn't the only one."
Google and Facebook offer
free services such as a search engine and a social network to users and then
sell targeted advertising to companies based on the size of their audience.
Amazon and Apple have vast
stores of credit card and other information on their customers, which they use
to tailor product recommendations.
Seeking to value and tax
these practices could prove complicated for France to enact on its own and could
be subject to legal challenge if the rules were seen to be unfairly targeting a
few major companies, tax experts said.
Getting international
consensus to modify tax treaties is also likely to be a lengthy process. The
OECD is also working on draft proposals that member states will consider in
January, with the goal of then taking them to the G20 in February.
French politicians, like
peers in Europe, are raising pressure on web companies who they say
collectively avoid paying millions in value-added and corporate taxes using
loopholes in European Union laws and different tax regimes across the region.
French tax authorities
have also stepped up enforcement of tax avoidance strategies employed by big
tech companies.
No. 1 Internet search
engine Google has been investigated by the French tax authority since June 30,
2011, when its Paris offices were searched, and computers and documents seized.
Tax authorities are
examining whether its practice of charging French advertisers via its European
headquarters in Ireland led it to underpay taxes in France.
Google has said its
practices in France conform with local law and that it is co-operating with the
authorities.
Internet retailer Amazon
said it had received a $252 million demand from the French tax authorities for
back taxes, interest and penalties in relation to "the allocation of
income between foreign jurisdictions".
(Additional reporting by
Catherine Monin and Tom Bergin; Editing by Hugh Lawson)
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