“Why we need a user generated content and data tax in Europe”

In a guest post at Venturebeat, Nicolas Collin explains why France wants to tax digital data (= user generated content).

Since the report stirred so much controversy, Collin obviously wanted to explain a bit about how they arrived at the conclusion that taxing Google, Facebook and others is best done by taxing their data.

Technically, as I explained the day the report was published, (Nicolas) Colin and his co-author Pierre Collin proposed to redefine a company’s ‘permanent establishment’ to include the ‘free work’ that users take upon them when entering not only their profile data, but also their status updates, Instagram pictures and so on.

I called it “elegant”, before.   The reasoning, says Colin, went as follows:

1. The data is valuable

User generated content and data are not just used for advertising, says Colin.It can also be used to customize a product, make purchase recommendations, maximize producer surplus by adjusting the price, better match supply and demand based on trust and reputation, measure and improve the performances of an application through A/B testing and growth hacking, fuel innovation efforts to ship new applications, and nurture entire ecosystems with platform-as-a-service business models.

“In short, the digital economy turns business into a Moneyball game, in which leveraging data leads to global scale development and higher profitability.”

2. Because the users add so much value, they become ‘producers’ too, rather than just ‘consumers’

Because the data is so valuable, this user generated data and content is actually blurring the line between consumption and production, says Colin.

He gives the example of users helping each other with support questions – replacing old fashioned support agents, which is one reason why internet companies can be so damn profitable. That’s where the idea of ‘free work’ emerges.

3. Tech  companies are free riders

Says Colin: the tech companies profit because they have access to well educated users who connect to the internet via broadband – none of which they built. In essence, he’s calling the tech companies free riders, which for some reason reminds me of the argument that Kwarter founder Carlos Diaz made about ‘second screen startups who shamelessly sell stolen audiences’.

Says Colin: ‘The value of their intangible assets soars because of network effects, but those assets are located in tax havens where they attract most of the profits (since these companies don’t pay dividends, they can locate their profits anywhere).’

4. International tax law makes it too easy to evade taxes

The rule in international tax law is that you get taxed where your headquarters are, but that makes it too easy to pick the a tax haven to install your headquarters, says Colin:

“Only when there’s a permanent establishment can a country without a headquarters levy a corporate tax. But the definition of a permanent establishment is gravely out-dated and completely misses the digital economy.”

Says Colin: the taxes should be applied in the country where the value is added, and thus: where the users are.

Also, he stresses that his proposal doesn’t say that any data collection should be taxed, but rather certain data collection practices. He thinks the best way to tax data collection is to shape it like a carbon tax: to make it an incentive for companies to empower users and spur innovation.

Note: the French government hasn’t announced its position on the issue yet.

Tell us what you think!
Via VentureBeat, Photo by Soukup, Flickr

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About the author

Raf Weverbergh

Editor of whiteboard. Raf Weverbergh was a magazine journalist whose work appeared in magazines like Rolling Stone, Playboy, Mail on Sunday, Publico and South China Morning Post. He is the co-founder of FINN, a corporate communications agency where he advises startups and multinationals on their PR and Mustr, the easiest media database for PR professionals. You can contact him on Twitter, Linkedin or Skype (rafweverbergh).

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