France plans to tax Google and Yahoo

In a move that may have repercussions worldwide, French president Nicolas Sarkozy has put forward plans to tax major internet advertising companies like Google and Yahoo in order to raise money to support creative industries.

Sarkozy made the speech (video in French) to French culture officials at the Cité de la Musique in Paris yesterday.

Previous controversial proposals by Sarkozy to help content creators included a 'three strikes' policy to tackle illegal downloading that ended up having its biggest impact in the UK.

Although the idea was rejected by the highest French constitutional court, it was widely debated at EU level, and has been backed by UK business secretary Lord Mandelson.

Sarkozy said yesterday that big advertising companies should be taxed in order to create pre-paid cards for children to buy music online. The announcement was a clear endorsement of the Zelnick report.

The Zelnick report was written by France's former minister of culture, Jacque Toubon, who pushed for the copyright 'three strikes' rule to be included in EU debates, and Patrick Zelnick, who runs a chain of music stores called Naiv. The authors suggested that the new taxation could raise up to £17m.

Sarkozy also called for the French competition authority to investigate Google because of its dominant position in the online ad market.

Oliver Esper, senior policy manager for Google France, argued that taxing internet advertisers is not the right way forward as it would slow innovation, although he did not address Sarkozy's anti-trust concerns regarding Google.

"The better way to support content creation is to find new business models that help consumers find great content, and rewards artists and publishers for their work," said Esper.

Yahoo declined to comment.

Google has been under attack from French copyright officials. Last month a court in Paris ruled that Google was in violation of its copyright laws.

A spokesman for the British Phonographic Institute, which represents the UK recorded music business, said that it would "watch developments with interest".

The International Federation of the Phonographic Industry, which represents the recording industry worldwide, said that it would not comment on the statements made by Sarkozy.

Meanwhile, Jérémie Zimmermann, a spokesman for French citizens' rights group La Quadrature du Net, said that it will be difficult to get Sarkozy's policy through because it is attacking international companies. "It would have to go through the EU first," he said.

Zimmerman added that the most worrying part of Sarkozy's speech was when he put forward plans to filter the internet in order to decrease illegal downloading. "This is a high level threat to human rights," he said.

Andreas Pouros, chief operating officer at search marketing firm Greenlight, argued that Sarkozy's proposals could have a hidden objective.

"The suggestion that the tax will help France subsidise music artists and book publishers doesn't sound like the sole objective here, given that this amount of money won't make much of a difference if it's spread so thinly across France's creative community," he said.

"On this basis it feels like protectionism of the worst sort. Instead of collaborating with successful, innovative companies, or creating an environment that promotes innovation domestically, France appears to want to give its own industries an unfair commercial advantage by taking money from non-French firms. "

Pouros also warned that France would risk war with "some of the world's most innovative online firms" if the proposals are adopted.

"It is, of course, understandable why France would be concerned, particularly given that Google has approximately 98 per cent of the search engine market in that country," he said.

"But instead of treating successful companies as the enemy, it should look to the music and publishing industry to reinvent themselves and offer the consumer an alternative to Google et al."