France is now saying it will enforce what’s been dubbed the “Google Tax” [FR], a sort of customs tariff on web products and services sold from anywhere outside of France.
Previous governments have tried coming up with a way to apply VAT on digital purchases from foreign companies, from a song on iTunes or an ebook on Amazon, to a Google ad. Since these are cross-border transaction, and since the tax would only apply to customers in France, the government wouldn’t be really taxing Google or Amazon, headquartered abroad. Instead, their French customers will pay. This Google tax is actually a digital sales tax.
Rules on sales tax, or VAT as it’s called here, are a EU matter. EU members agreed that VAT, currently paid to the state in which the merchant is, will be paid instead to the state where the buyer is, starting 2019. That’s boring until you realize that if the French government was to introduce a Google tax before that, French consumers would end up paying twice, both the Google tax in France and the VAT.
An opportunity to hinder businesses too
But consumers aren’t the only ones who get the stick. For businesses, under the guise of balancing competition, it gets even more ridiculous. For example, this catch-all tax also ambitions to fight Goliath Amazon and protect our David French bookshops and businesses from unfair competition. This ambition translates into a reported study by policymakers around the concept of banning free delivery of items in order to force Amazon to charge for it. With ebooks on the rise, the foresight here is simply breathtaking.
This kind of policy making is symptomatic of trying to protect established businesses at the expense of emerging ones. Such policies offer a short-lived protection, but the ripple effect on local potential market disruptors is devastating. This doesn’t prevent outside competitors from outpacing local market players though, and soon Apple, Google, and Amazon dominate the domestic market. And the government tries to pass a Google tax because it sees untaxed cash flows zipping by.
So no, the Google tax will not do any good to the French economy. What’s more, while this keeps everyone busy, other initiatives that could actually foster entrepreneurship or growth aren’t pursued. Google, Apple, and Amazon weren’t born from tariffs, but from startups. So if digital economy Minister Pellerin wants to do some good, she should work on enabling the startup ecosystem, including angels, VCs, and incubators. Then maybe, just maybe, we’ll have a Google in France some day.
Hypocritical context – A Wrap-Up
- if you have a real problem with tax dodging, your problem is tax havens and EU policy, not Google. Also, you’re 5 years late, and counting.
- if you want to have cutting edge startups, it’s easier with a cutting edge environment, ie having 4G coverage and real very high speed internet could be nice. Invite Google Ventures to visit.