France plans to study different measures to collect more tax from global Internet companies, including a new type of levy on the personal data of web surfers that the likes of Google and Facebook use to make money.
In a 150-page report commissioned by the government of Socialist President Francois Hollande in July, two experts laid out a series of recommendations for measures at the national and international level to limit technology companies' ability to avoid tax legally.
The government said it would now evaluate the feasibility of the various policies with the aim of proposing a law by year-end to modify how global Internet companies are taxed in France. It added that France would work with countries in the G20, the OECD and the European Union to adapt international tax regimes to the "new reality of the Internet economy".
"This report exposes the off-shoring of profits that is practiced by some companies in the new economy, which will only grow if nothing is done to tax their activities in France," four French ministers said in a joint statement.
Tax experts said France may find - just as it did with its attempt to impose a 75 percent income tax rate on millionaires - that it is difficult to devise a tax that targets only those it wants to but which a court does not find discriminatory.
Corporate tax avoidance has become a hot topic internationally as governments struggle with large deficits in the wake of the banking crisis.
France's planned legislation is in line with a push by Britain and Germany, who want the G20 group of nations to make multinational companies pay their "fair share" of taxes, following reports of large firms exploiting loopholes to shift taxation of their income away from where it is generated.
Australia released draft revisions to tax laws in November designed to stop tech firms from shifting their income to low-tax countries.
In France, among the report's measures is a call for France to work with other countries within the G20 and international organizations to refine the definition of where companies are based for tax purposes, so as to curtail venue shopping for lower tax rates.
A new system of taxation should also be devised, the report argues, that allows individual countries to tax multinationals even when they are not based in the country, basing levies on the contribution of local residents' data to profits.
For example, if Facebook makes money from advertising sold based on user data from French citizens, then it should have to pay local tax on those profits.
"The major question is how do you localize the profits of big Internet companies and attach them to the country where they were generated?" Fleur Pellerin, deputy minister for the digital economy and small business at the Finance Ministry, said.
"Tracking the collection and usage of personal data is one of the approaches we are exploring but it isn't the only one."
Google and Facebook offer free services such as a search engine and a social network to users and then sell targeted advertising to companies based on the size of their audience.
Amazon and Apple have vast stores of credit card and other information on their customers, which they use to tailor product recommendations.
Seeking to value and tax these practices could prove complicated for France to enact on its own and could be subject to legal challenge if the rules were seen to be unfairly targeting a few major companies, tax experts said.
Getting international consensus to modify tax treaties is also likely to be a lengthy process. The OECD is also working on draft proposals that member states will consider in January, with the goal of then taking them to the G20 in February.
French politicians, like peers in Europe, are raising pressure on web companies who they say collectively avoid paying millions in value-added and corporate taxes using loopholes in European Union laws and different tax regimes across the region.
French tax authorities have also stepped up enforcement of tax avoidance strategies employed by big tech companies.
No. 1 Internet search engine Google has been investigated by the French tax authority since June 30, 2011, when its Paris offices were searched, and computers and documents seized.
Tax authorities are examining whether its practice of charging French advertisers via its European headquarters in Ireland led it to underpay taxes in France.
Google has said its practices in France conform with local law and that it is co-operating with the authorities.
Internet retailer Amazon said it had received a $252 million demand from the French tax authorities for back taxes, interest and penalties in relation to "the allocation of income between foreign jurisdictions".
(Additional reporting by Catherine Monin and Tom Bergin; Editing by Hugh Lawson)