French Senate Adopts 'Google Tax'

by Ulrika Lomas, Tax-News.com, Brussels

25 November 2010

The French Senate has voted in favour of an amendment introducing a 1% tax on the purchase of online advertising space, within the framework of its examination of the country’s 2011 finance bill.

Put forward by French Senator Philippe Marini, the so-called ‘Google tax’ is set to enter into force in France from January 1, 2011. Under the terms of the amendment, the new tax will be levied on any purchaser of online publicity services established in France, and will be imposed on the amount paid out, excluding value-added tax (VAT). The tax, which will be paid under the same conditions as VAT, will only apply, however, to electronic transactions carried out between businesses (business to business – B2B).

Defending his amendment, Philippe Marini emphasized the need to establish equality between the various advertising media, pointing out that advertising on both television and in the traditional paper press is already subject to taxation in France. Maintaining the status quo would therefore lead to a distortion of competition, he argued.

Nevertheless, the Senate’s latest decision is likely to prove highly controversial. Organizations in France have already voiced their opposition to the proposals, arguing that rather than achieve its intended aim, which is to target internet giants such as Google, the measure will merely weigh heavily on small advertisers and lead to an exodus of larger internet stakeholders from France.

The aim of the provision was to recover lost fiscal revenues from internet giants such as Google, Microsoft, eBay and Amazon. According to Marini, these operators are strategically located in European countries including Ireland and Luxembourg in order to benefit from various fiscal advantages.

Yet despite its unpopularity, while the provision could be adjusted by a joint commission (une commission mixte paritaire – CMP), responsible for establishing a common text between the readings of the bill in the National Assembly and the Senate, Marini emphasized that there can be no turning back.

The new tax is expected to generate between EUR10m and EUR20m.

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