Last week, the Zelnik report, commissioned by French culture minister Frédéric Mitterand, recommended imposing a 'Google tax' on the online advertising revenues of Google and other Internet giants as part of an initiative to support creative output in France. Patrick Zelnik, CEO of independent music label Naïve, Jacques Toubon, former minister of culture and Guillaume Cerutti, CEO of Sotheby's France put the report together, also recommending ways to try to get young people back into buying rather than illegally downloading music online.

Zelnik told Libération that he envisaged taxing a "a small percentage of the €800 million that the search engine brings in from advertising in France." He told the French daily that although the music industry was in the most difficult situation, the press was also "in grave danger."

According to the Guardian, the "Google tax" would be expected to raise between €10m and €20m a year, and amongst the beneficiaries would be an effort to promote newspaper subscriptions and expand online publishing platforms.

French president Nicolas Sarkozy backed the report's call for a decision by French competition authorities on the dominant market position of big online firms, according to AFP. He did not comment specifically on the tax proposal, however.

Google France released a statement saying that it hoped the government's plans would lead to innovation rather than new taxes. European Union regulators have warned that they would have to check the plan to tax advertising revenue and make sure it would not harm competition, reported the Press Association.

In his weekly newsletter Monday Note, Frédéric Filloux, an editor for Schibsted, commented on the proposals and explained the tax issue further. Filloux points out that the assumed revenue of €800m comes from small text ads, and estimates that the French operation takes in more than €200m in profit. However, Google "optimizes" its tax strategy and files the bulk of its profit in Ireland where the corporate tax rate is far lower than that in France - 12.5% as opposed to 34.4%. Google ends up paying only about €40m a year to the French treasury.

It is easy to see why the French government might find this situation unfavourable, but as Filloux points out, plenty of other companies operate similar tax-optimizing strategies.

The French government takes an active role in supporting the press, having spent €1.2 billion in 2008 on schemes such as free newspapers for young people. The government is also a major shareholder in news agency Agence France-Presse. Would taxing Google be a step in the right direction or a step too far?

Source: Monday Note, Guardian, Press Association, AFP, Libération