January 29, 2013

Google should say au revoir to France

By: AFF Editors

Yahoo Finance reports that the French government has decided to go after American web giants Google and Amazon for billions of dollars in back taxes. This comes on the heels of a recently released report from the French government that proposed a new tax on data collected from the country’s users.

The moves are part of an effort to alleviate the country’s economic woes. In an effort to raise revenue, French politicians are claiming that American companies are unfairly advantaged in the marketplace because they avoid the high taxes French companies have to pay. However, Money Morning reports that many claim that Google and Amazon are just taking advantage of perfectly legal tax-code loopholes by, for example, setting up shop in European countries with lower taxes such as Ireland.

Either way, raising taxes on profitable companies is a short-term fix. Ultimately the only long-term solution to the France’s fiscal woes is to slash entitlement spending and institute policies that spur economic growth.

Heavily taxing the most innovative and profitable companies operating in your country is not the way to encourage innovation or profit. Nor is creating an environment where companies think they know what their tax burden is, only to find out later that they owe much more than they thought they did. The data collection tax is especially problematic, as it taxes based on how many users companies track, essentially disincentivizing customer acquisition.

As for Google, Money Morning reports that France is looking to hit the web giant with a $2 billion bill. More importantly, perhaps, it’s possible that when investors see European countries successfully hit American companies with big bills, stock prices will plummet.

Google only pulls in $2 billion per year in France. If Google ends up having to pay this tax bill in order to operate in France, perhaps the company should consider pulling out of the country entirely.

It wouldn’t be the first time Google willingly left a country. Back in 2010, after four years of increasingly onerous censorship requirements from the Chinese government, Google discovered that the Chinese government had been surreptitiously surveilling human rights activists’ online activity. At the same time, the company was getting even more requests to censor Chinese users’ search results and China was blocking users from accessing Google-owned sites like YouTube completely.

In March 2010 Google had had enough, and hightailed it out. They began redirecting searches to Google Hong Kong. Many argued at the time that Google was hampering human rights activists by leaving the country, claiming a censored Google is better than none at all.

Interestingly, a Der Spiegel interview with Google co-founder Sergey Brin shed light on why he might have felt it may be better to leave the country than to continue to be party to civil-liberties abuses. Brin talked about as his family applied for exit visas to leave the Soviet Union the police visited his home and his father lost his job.

In the end, concerns about Chinese users unable to use Google turned out to be overblown. Users either find a way to access Google Hong Kong or have switched to rival search engine Baidu.

The withdrawal wasn’t without consequences, however. Several Chinese businesses that Google had invested in, including the Chinese version of Yelp, were hit hard. Google also warned during the pullout that sending all Chinese users to Hong Kong’s servers could delay search results or make certain searches temporarily unavailable during the transition.

Certainly, a big surprise bill and a tax on data collection are not on par with civil liberties violations such as censorship or secret spying. They are nonetheless deeply problematic moves that are certain to hurt Google’s bottom line, disincentivize innovations, and ultimately — regardless of how Google deals with the problem — hurt French users in the end.

Google should consider pulling out of France, if not for the sake of the company’s share prices or to avoid the bill, then to send the message that if France wants to make it hard for businesses to be profitable, highly profitable businesses will go where they’re wanted.

Cathy Reisenwitz is the digital publishing specialist for Reason magazine. Eiffel Tower image courtesy of Big Stock Photo.

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