Back in September we wrote Is Google International Growth in Jeopardy? and today our fears came one step closer to being realized with the news that France is now seriously looking at a tax on the advertising revenue collected by companies like Google in France.
This isn’t as strange as it seems. The success of companies like Google means that foreign countries are in fact seeing billions of dollars of revenue effectively sucked out of their economy. Many of these countries, France included, see this situation becoming untenable. At the same time these governments are spending vastly increased sums of their own money on Internet infrastructure including broadband and content. If they are spending billions on these improvements only to see Google reap the reward without even paying a tax.
I think it’s highly likely that countries will impose a tax of some sort on this type of business activity. At least in the most extreme case for local advertising on www.google.fr for example. As long as the tax is reasonable it’s not going to be a disaster for Google but it will reduce their margins a little bit. The magnitude depends on the number of countries that decide to adopt such a stance.
These debates have been around for over a decade and started with the desire for states to tax sales of physical goods via online channels like Amazon.com. The problem today is that the numbers have become *much* larger. At the same time local economies are struggling and to some, albeit small, degree the loss of local revenue to global companies like Google is part of the reason. The truth is it’s more like salt in the wound created by the financial crisis, economic slowdown, high unemployment and lower property values.
It’s easy to decry government interference and avarice here but it’s not possible if at the same time everyone wants the government to subsidize “broadband for everyone” and other technology infrastructure improvements.
Google might think about taking a more constructive approach than companies like Microsoft, Oracle and Intel have in the past. Maybe a better solution would be to actually help countries like France instead of fighting them? For example the French government is ramping up a very large set of spending initiatives that will in fact help Google quite a bit. What if Google came forward with a contribution of expertise and some small revenue share to focus on developing the French online technology industry?
Google may or may not realize that this is closer to what Microsoft is doing in places like France and it’s effective. Google is powerful enough to lose some of these battles and it won’t necessarily impact the stock price in the short term. But at the same time it wouldn’t take a huge effort for Google to turn the situation in their favor or at least to neutralize what could be a stinging development if it is allowed to gather momentum.
[Disclosure: Google is part of the Research 2.0 model portfolio.]