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France Takes Aim at Online Ad Revenues

France is mulling over a new tax that could impact online ad revenues earned in France - and also, indirectly, everywhere else. According to a report commissioned by the Ministry of Culture, France could earn up to $29 million a year by imposing a supplemental tax on the online ad revenues of Google, Yahoo, Microsoft, AOL and Facebook (via BusinessWeek).

France would use the revenues to support local online cultural and art content, as well as support local artists and musicians whose work is illegally downloaded from the Internet.

Cons and More Cons

While such goals are a noble cause, the online internet community is up in arms about the proposal for a number of reasons:

  • If France does it, then other governments will be tempted to as well.
  • Other industries disrupted by the internet - such as print journalism or the travel sector - might clamor for similar consideration.
  • Actually taxing such revenues could be very difficult to execute as servers are not necessarily located in the same country as where a site is viewed.
  • It could stifle innovation by these companies.

Advertisers Could Feel the Heat

Perhaps the best argument against the tax, though, at least from an end user perspective is that these companies are bound to pass along the costs to consumers – and advertisers. "A major problem I see with France's proposed taxation of online ad revenues is that the cost, as it usually happens, will be pushed onto publishers rather than absorbed by Google or Yahoo or Facebook," says Daniel Ruby, research director at Chitika (via the E-Commerce Times).

"Small- to mid-sized websites that generate the bulk of their income from ads will be the ones affected most negatively, as their revenue share and CPC earnings will likely be cut so that the ad networks can keep a viable business model going."

Another possible unintended consequence will be more invasive advertising," Ruby says. "As revenue share of small publishers and CPC goes down they will do whatever they can to ramp up more clicks which means more invasive and possibly deceptive advertisements."

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