The boss of German media group Bertelsmann has hit out at France’s new tax on digital companies, warning that the measure would hit European businesses much harder than US giants like Facebook and Google and risk becoming a “bureaucratic nightmare.”
“We are really worried about this [tax],” Thomas Rabe, Bertelsmann chief executive, said in an interview. “I understand that there is a desire to impose higher taxes on tech platforms. But the truth is that a tax on sales will hit us much harder than US digital groups because their margins are higher.”
Last month, France introduced a 3 per cent sales tax that will be applied to digital companies with annual revenues of at least €750m, of which at least €25m must be derived in France. The tax will affect about 30 companies worldwide, including Google, Facebook, Apple and Amazon. But it will also affect Bertelsmann, which still makes the bulk of its revenues in more traditional media sectors such as television, book publishing, music and printing.
According to Mr Rabe, the French approach — which could yet be emulated by other European countries — has the potential to turn into a “bureaucratic nightmare”. He said: “It is completely unclear what constitutes digital revenue and how to measure it.”
The French tax has already sparked an intense backlash from US technology groups, and drawn pointed criticism from US president Donald Trump. The measure was also a subject in the bilateral talks between Mr Trump and French president Emmanuel Macron at the G7 summit in Biarritz last weekend. The two leaders said they were ultimately able to set aside their differences over the tax, following French assurances that it would repay companies any difference between its tax and the future digital tax mechanism being developed by the OECD.
Mr Rabe’s remarks came as Bertelsmann reported first-half sales rose 5 per cent to €8.6bn, the highest in 12 years, helped by a strong contribution from its Penguin Random House book division and a notable lift in digital revenues.
Bertelsmann’s RTL television channels once again contributed the bulk of revenue, with sales growing 4 per cent to €3.2bn.
However, pre-tax profits in the first half dipped to €656m from €663m in the same period last year. Operating earnings before interest, tax, depreciation and amortisation jumped from €1.1bn to €1.3bn.
The group had invested heavily in boosting its video-on-demand (VOD) activities, Mr Rabe said, part of a longer-term effort to compete with the likes of Netflix and Amazon Prime by offering content tailored to local tastes. Bertelsmann’s VOD platforms in Germany and the Netherlands have 1.2m paying subscribers, an increase of 46 per cent compared with last year.
The standout performer, however, was Penguin Random House, the New York-based book publisher, which saw revenues jump more than 11 per cent to €1.7bn. Michelle Obama’s best-selling memoir Becoming sold another 2.8m copies between January and June, taking overall sales since publication to 11.5m copies.