France may tax user data collected by internet giants, such as Google and Facebook, after a report for the government recommended radical steps to tackle tax-avoidance by multinationals.

The move comes amid growing scrutiny in France of web companies that funnel revenue from their operations here through low-tax regimes such as Ireland and Luxembourg.

Proposing an overhaul of the French tax system for online firms, the study by two senior officials at the finance ministry, published yesterday, says the state should shift its focus to user data, “the principal raw material that feeds the digital economy”.

Targeted

Google, Facebook and other firms offer free services to users and then sell targeted advertising to companies based on the size and the make-up of their audiences, the report notes. Since large web companies pay little tax in France on the sale of advertising, however, the taxation system should target the valuable data those companies receive free-of-charge thanks to the “collaboration” of internet users.

Whereas online firms can avoid tax on advertising sold in France by declaring this revenue overseas, the proposed new model would allow France to focus on information contributed by users based in France.

The tax would be designed in such a way as to reward companies that respected rules on the protection of individuals’ rights and used their data in a transparent manner. Small and newly created firms would be exempt. The report adds that while internet giants such Amazon, Apple, Google and Facebook would be affected, the tax would also apply to online banking services and retailers’ e-commerce activities.

Proposals

The government wants to move quickly on the proposals, according to a report in the financial daily Les Echos, and could include them in its budget bill for 2014, which is usually submitted to parliament in September. The report on taxation in the digital economy, commissioned last year by finance minister Pierre Moscovici and three other government ministers, also outlines actions France should take at international level.

It recommends that Paris should try to renegotiate OECD taxation conventions, which determine how tax liability should be calculated for a person or entity that is economically active in a country other than that in which he or she is based.