Yahoo! move a blow to France

In a move that is likely to heighten tension between French authorities and the internet giants, Yahoo! has announced that it is transferring its continental European operations – including French – to Yahoo! EMEA Limited in Ireland.

“As of March 21st, we will provide our services to you from a single European entity, based in Ireland,” the email sent to Yahoo!’s French clients on Wednesday said.

Yahoo! says the transfer of its mail, messenger, weather and Flickr photo sites to Ireland will have no effect on the 150 employees who carry out support and marketing and oversee editorial content in France.

The company presented the move as a rationalisation of its European team and a simplification of the organisation. It says it will continue to pay tax in France.

But the move is widely seen as an attempt to minimise Yahoo!'s tax exposure in France, following the example of Google, Facebook, PayPal and Apple by placing itself under Irish tax law. French corporate tax is 34 per cent, compared to 12.5 per cent in Ireland.

Today's Le Monde reports Yahoo!'s move under the front page headline "The internet giants play with tax." Yahoo! reportedly advertised three weeks ago for a European tax specialist, to be based in Dublin. Yahoo! was audited in France five years in a row. Like Google, Amazon and Mircosoft, it was charged supplementary taxes.

From now on, Yahoo’s Irish headquarters will bill its offices in France, Germany, Italy and Spain for services provided to them. Advertising contracts will be negotiated in Ireland, and profits from French and other continental advertisers will be credited to Yahoo! EMEA in Ireland.

Until now, Yahoo!’s Swiss office billed other European offices for services. Because Ireland is in the EU, it will be more difficult for the French to contest Yahoo!’s operations there. Ireland also offers the advantage of not withholding tax at source on profits leaving the EU.

According to Le Monde, fears about data security accelerated Yahoo's transfer. A law on military programmes passed in December 2013 legalises the access of French intelligence agencies to internet data. Yahoo! belongs to a French association which protested against the law.

Yahoo! argues that the data of all European clients will fall under Irish law from March 21st. This is disputed by the French commission on computer technology and freedom CNIL, which says French law applies to data generated in France.

'Ambia

nce' a factor
Nicolas Colin, a finance inspector and the co-author of a report on taxation of the digital sector, told Le Monde that the "ambiance" in France and the intervention by the French industry minister Arnaud Montebourg to prevent the sale of the Dailymotion video website to Yahoo! last year, on the grounds of "economic patriotism," were also factors.

Yahoo!’s departure risks strengthening the perception of the socialist government as being hostile to business. UNCTAD reported on January 29th that direct foreign investment increased an average 37.7 per cent in the EU last year. But France registered the worst performance in the world, with a 77 per cent drop in foreign investment.

In its dispute with Google, France has long argued that users create value for internet companies, which should therefore be taxed on the number of French users. According to Le Point magazine this week, Google has just been hit with a €1 billion tax adjustment by French authorities.

The Organisation for Economic Cooperation and Development’s project on “Base erosion and profit shifting” (BEPS) seeks to ensure that all companies, including internet giants, are taxed somewhere. The final report is due in September, but will not take effect for some 18 months.

Taoiseach Enda Kenny, Tánaiste Eamon Gilmore and four cabinet ministers will spend today at the OECD for consultations on Irish economic policy. BEPS “may be mentioned in passing” but will not be a focus of the talks, a reliable source said.

French president Francois Hollande will visit the US on February 10th-12th. After seeing President Obama in Washington, he will travel to Silicon Valley for meetings with Eric Schmidt, the executive president of Google, Jack Dorsey, the co-founder of Twitter, and Sheryl Sandberg, the chief operating officer of Facebook. Mr Hollande does not have an appointment at Yahoo!.