A French government official has floated a plan to tax data. If enacted, this would enable France to tax companies that collect data on its inhabitants. But it could also have far-reaching effects on the way global businesses use the Internet to manage and market their brands. 

Officials in France came up with this because they’re not earning tax revenue from traditional forms of taxation. Companies such as Amazon, Facebook, and Google earn revenues in European countries, but pay little to no tax because they route their sales through smaller countries, like Ireland and Luxembourg, where corporate tax rates are lower, writes the New York Times.

As an example, Google raised $2 billion a year selling advertising in France, while paying almost no tax in France, writes Bob Sullivan for NBC News.

Taxing data would have a huge effect on businesses around the world because nearly every major company works by collecting data. “We hear about Google and Amazon, and it's easy enough to extrapolate the thinking to the likes of eBay and Facebook,” writes Rob Preston in InformationWeek. “But is Wal-Mart a giant tech company? Is Procter & Gamble? Are General Motors and Ford? Because each of them (and thousands more) is collecting many terabytes of customer and other data to fuel their businesses.”

Taxing data won’t just raise revenue. It could also change corporate behavior. It is, in a sense, a “privacy tax” on companies that make money based on collecting users’ personal information. Comparing it to carbon taxes, one of the report’s authors, Nicolas Colin, writes in Forbes, “It would tax 1) any company 2) that collects data through regular and systematic monitoring 3) from lots of users based in France and 4) that refuse to comply with stronger privacy and user empowerment requirements. In the end, it provides incentives to firms that better inform their users and open up APIs to enable smart disclosure.” (The report itself is in French.)

In other words, the results could be like the recent European Union anti-cookie law, which requires firms to notify visitors to European-based web pages that the site uses cookies and asks for their consent.

Disclosing cookie policies and asking for consent is fine… in theory. But a big part of the value of the Internet is its ability to leverage information about people, whether it’s to suggest new friends, articles or movies they might like, or products they might buy. The free flow of information makes the web the powerful force it is today. Setting up laws that slow down that flow could have disastrous consequences.

France has not endorsed the report; it has only commissioned it. But if France becomes a place that taxes the Internet economy, it seems likely that big Internet companies will simply find new ways to avoid those taxes. If they can’t avoid those taxes, they may take steps to pull out of the French economy in ways we can’t begin to imagine. And if your company has a presence in France, it’s something your company will have to consider as well. Moreover, if France does it, other countries might follow suit, leading to a patchwork of privacy laws and taxes that companies will have to follow. 

The biggest losers in this scenario might be marketing departments, which would have to tiptoe through landmines set up by lawyers and tax accountants.  Marketing could become a highly regulated department like legal, accounting or human resources, with all the expense and oversight that involves.

The end result could be nothing less than the Balkanization of the Internet — dividing a once unified entity into warring hostile states. Back in 1819, US Chief Justice John Marshall warned: “The power to tax involves the power to destroy.”

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