UPDATE 1-France to explore "Google tax" to pay creative work

* Tax could apply to Google, Yahoo, MSN

* Authors of survey also target Internet service providers

(Adds Sarkozy comments, details)

PARIS, Jan 7 (Reuters) - French President Nicolas Sarkozy said on Thursday that he wanted the authorities to explore whether online advertising revenues of major search engines could be taxed in France as well as their home countries.

Speaking to leaders and representatives of the arts and entertainment sector, he also said he wanted the country's antitrust body to rule on whether Google GOOG.O enjoys a dominant market position in online advertising.

“For the time being, these companies are taxed in the country in which they are headquartered even though they make up a big part of our advertising market,” he said.

Sarkozy’s comments followed a media report saying France could start taxing Internet advertising revenues from online giants such as Google, using the funds to support creative industries that have been hit by the digital revolution.

The proposal, put forward in a government-commissioned survey, is France’s latest challenge to the virtual free-for-all for Internet content.

The country has caused controversy in the past with some of the world’s harshest laws on online piracy.

The levy, which would also apply to other operators such as MSN and Yahoo, would put an end to “enrichment without any limit or compensation,” Liberation quoted Guillaume Cerutti, one of the authors of the report, as saying.

It would apply even if the operator had its offices outside France, as long as the Internet users who click on ad banners or sponsored links are here, the paper said.


President Nicolas Sarkozy has repeatedly tried to present himself as a defender of France’s cultural heritage in the digital age, most recently calling for public projects to rival Google’s plans for a massive online library.

Critics say the issue of compensating authors is a complex one, given that many of the songs, films and texts published online these days are created for free by amateurs outside the cultural establishment.

Cerutti, president of Sotheby’s in France, drew up the report together with Jacques Toubon, a former minister, and Patrick Zelnik, a former music executive who has among others produced the songs of France’s first lady, Carla Bruni-Sarkozy.

The authors also suggest taxing Internet service providers to raise tens of millions of euros that would be invested in developing the online music business and other creative sectors.

For example, they propose offering government-subsidised online subscriptions and expanding online publishing platforms, said Liberation, which obtained a copy of the report.

In his address to industry players, Sarkozy also unveiled plans to subsidise half the cost of a card -- worth up to 200 euros ($287) -- which young people could use to legally download music from the Internet.

In recent months, operators and users have faced increased pressure to pay for content from online newspapers to films and books. Under France’s new Internet piracy law, repeat illegal downloaders will be disconnected and fined.

The new report was handed into the Culture Ministry earlier this week. It was not immediately clear if the government has a precise timetable to act on it. ($1=.6976 Euro) (Additional reporting by Emmanuel Jarry) (Editing by Noah Barkin)