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Monday, February 25, 2013

French Tax Proposal Zeroes In on Web Giants’ Data Harvest

French Tax Proposal Zeroes In on Web Giants’ Data Harvest

Pool photo by Philippe Wojazer

Eric Schmidt, left, Google’s chief, and President François Hollande in Paris this month.

PARIS â€" Only a few weeks after the French Constitutional Council rejected one new tax idea â€" a 75 percent levy on annual incomes of more than 1 million euros ($1.3 million) â€" another began percolating through the halls of the finance ministry here: a proposal to tax the collection of personal data on the Internet.

Google and Facebook know that John Doe “likes” wine, is shopping for a Volkswagen and often e-mails Jane Doe. The new idea would require the companies to pay for gathering that information.

Nicolas Colin, one of the authors of a report in which the idea of taxing data collection was floated in January, said the immediate goal would be to promote sound practices for data collection and protection.

While the report does not specify how much revenue the tax would yield, Mr. Colin said it would probably be minimal.

“It’s meant to incentivize everyone to operate at a higher level, not to raise a lot of money,” he said. “You can’t go from zero to collecting hundreds of millions overnight.”

Like other European countries, France has been frustrated by its inability to raise significant tax revenue from the billions of dollars in sales and profits that Internet companies, many of them American, generate in Europe every year.

And despite so-called austerity measures, budget deficits remain large.

“Every government needs revenues,” Mr. Colin, a government auditor and technology entrepreneur, said in an interview. “If they can’t get them from the most profitable companies, then they have to get them from the rest of us â€" individual taxpayers and smaller, struggling companies.”

Internet companies like Amazon.com, Facebook and Google stay largely out of reach of tax collectors in large European countries like Britain, France and Germany by routing their sales through smaller countries, like Ireland and Luxembourg, where corporate tax rates are lower. The companies insist that such practices are permitted under European Union law and international taxation treaties.

France and other countries have begun talks to change those conventions, so Internet companies could be taxed in the country where a sale takes place, rather than in the location where the transaction is recorded. But that could take many years, with no guarantee of any change.

On the other hand, France could impose a tax on data collection unilaterally and quickly, Mr. Colin said.

The prospects for his proposal are unclear. While the report was commissioned by the government, it is not an official policy document, and the finance ministry has yet to take a position on the idea.

On other issues involving the digital economy, the administration of President François Hollande has sent mixed signals. After threatening Google with a law that would have let publishers charge the search engine for links to their Web sites, for example, the government backed down and accepted a negotiated deal that maintains Google’s existing business model, under which links are free.

The French data protection agency, which is known by the initials C.N.I.L. and is independent of the government, has been more forthcoming about the taxation proposal.

“Personal data are the fuel of the digital economy,” Edouard Geffray, the agency’s secretary general, told the French version of the online magazine Slate. “Given that, it would seem like a natural idea to envision taxing the use of them.”

While business plans built on mining consumers’ personal information from the Internet are proliferating, so are concerns about the use of the data.

Last week, the data protection authorities of the 27 European Union countries threatened Google with punitive action over a privacy policy that the company put in effect last year, under which it harvests data from a range of services. The agencies, led by C.N.I.L., gave Google four months to make changes or face legal action. Google insists its policy complies with European Union law.

A recent study by Ovum, a research firm in London, showed that 81 percent of Internet users in France would use a “do not track” feature on Web sites if it were readily available. That was the highest percentage in any of the 11 countries surveyed.

“The privacy market is heating up,” said Mark Little, an analyst at Ovum. “There is a move away from what I would call data fracking to consumers’ creating their own contracts governing data use, and corporations’ having to abide by those.”

Mr. Colin said the main goal of his tax plan would be to reward companies for providing their customers with useful information, while penalizing those that did not do so.

Internet companies, for example, could be taxed if they collected “cookies” â€" digital markers of the Web sites that Internet users visit â€" without enabling consumers to see how the information was used. Companies that did provide that information readily would be exempt.

Analysts call such a practice “smart disclosure” because it can help consumers make informed decisions. Utilities that provide consumers with more detailed information on, for example, their patterns of electricity or natural gas consumption could help them reduce their bills.

Mr. Colin said there was no intention to stop Internet companies from collecting data.

“That would be bad for business, and it would hurt French companies too,” he said.

While Internet companies are not alone in collecting vast amounts of data, Mr. Colin made it clear that the proposal was aimed at the likes of Google and Facebook, which are making inroads in more and more areas.

“I’m convinced the telecoms, even car manufacturers, will be disrupted by these companies,” Mr. Colin said. “We’d better learn to tax them before they eat the whole economy.”

A secondary purpose of the proposal, Mr. Colin said, would be to provide leverage in negotiations for a change in international conventions on corporate taxes. If those were altered so that France could tax foreign Internet companies on their profits, then the data tax could be dropped, he said.

“In France, we are seen as a nation of tax lovers, which isn’t always good for the French image, and isn’t always true, either,” he said. “But it is true that we are leaders in this area. Maybe the French government has the opportunity to make the case for accelerated negotiations.”

A version of this article appeared in print on February 25, 2013, on page B6 of the New York edition with the headline: In France, a Proposal to Tax Data Harvesting Is Aimed at Altering Web Practices.