French Report Advocates Internet Tax

by Ulrika Lomas, Tax-News.com, Brussels

23 January 2013

The French finance ministry has recently unveiled details of a report on taxation of the digital economy, submitted by state councilor Pierre Collin and government auditor Nicolas Colin.

Commissioned in July last year, the report "offers a detailed and striking vision" of the rise in the digital economy and the importance of "the exploitation of personal data" in this growing sector. The report exposes the problem of profit relocation or shifting by companies, warning that this phenomenon will only increase if nothing is done to tax their activity in France.

The report calls for a new tax to be introduced as a matter of urgency, based on the amount of personal information collected by internet companies such as Google which is used to direct personalized advertising and other services to users.

As recommended in the report, the government intends to act within the G20, the Organization for Economic Cooperation and Development, and the EU to adapt existing international rules governing the taxation of profits to the realities of the digital economy, notably by championing plans to modify the definition of "permanent establishment."

Alluding to a preliminary report due to be presented to the G20 in mid-February, dealing with the issue of profit relocation, the French finance ministry emphasized that the so-called "BEPS" (Base Erosion and Profit Shifting) initiative offers a historic opportunity for France and its partners to make rapid advances in this area.

At national level, the French government aims to pursue efforts to detect and to combat fraudulent behavior supported by digital technologies.

The government has made clear that the idea of a national tax based on the use of personal data is to be explored in detail in parallel with other proposals that have already been put forward aimed at resolving the issue, including notably the idea of taxing electronic trade.

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