Twitter and Zynga are thinking about moving out of San Francisco because they’re about to be socked with a huge tax bill. Ridiculous!But, one man’s mistake is often another man’s opportunity. And this is a great opportunity for these two great companies to move to a country notorious for its favourable tax environment… France.
Yes, taxes in France are pretty high compared to, say, Somalia. But compared to New York and California, it’s really not that bad. The US has higher corporate taxes, and when you take state and local taxes into account, the overall tax burden really isn’t much lower than France’s.
But the most important thing is that, if they play their cards right, startups based in France can get plenty of tax breaks. For example, R&D tax credits let technology companies deduct up to 80% of their R&D spending from their tax bill. Being in the European Union also allows you to move your tax burden around: Google pays very little taxes in France or anywhere else because they shift their burden to their Irish headquarters, where taxes are lower.
Last year, Google announced that they would open an R&D centre and a “Cultural Institute” in Paris (right now their Paris office is mostly sales), and the French government hinted, without coming out and saying it, that Google got tax breaks out of it. We’re sure Twitter and Zynga could work out a similar deal for moving their HQs in Paris.
France can be a hard place to start a company, but once you’ve reached a few hundred employees it gets much, much easier. Just ask innovative, billion dollar French tech companies like Vente Privée and Iliad.
Now, what would Zynga and Twitter get on top of tax breaks if they moved to Paris? Tech startups don’t just want tax breaks. They also want to hire the most talented people in the world. And this is where Paris truly shines.
Here’s what Paris has going for it:
- Very deep technical talent. French engineering schools are small, which means they don’t tend to make a big splash internationally. But the flip side of that is that by staying small, they churn out extremely talented graduates. Admissions to French engineering schools is very competitive, and takes place after two or three years of post-secondary education in preparatory classes where 80 hours a week of study is a minimum. It’s no coincidence that you can’t swing a cat on a London trading room floor without hitting a French guy. Twitter, these guys will sleep on your server room and come up with crazy-arse hacks to keep you up and running. (Yes, French people can and do work hard.) Paris also has a thriving open source community.
- Great designers. Paris and designers practically go together, don’t they? It would take too long to cite the amazing designers, in every area, who live and thrive in Paris. Twitter and Zynga are nothing if not design-focused, and indeed the entire “application layer” of the web is moving to a greater focus on design. Tapping Paris’s world-class pool of talent would definitely be a competitive advantage.
- Lower salaries. Given the lower purchasing power, even with higher (?) payroll taxes, a top engineer or designer still costs less to employ in France than in Silicon Valley.
- Gaming talent. This one is for Zynga. Perhaps precisely because of this combination of design and technical talent, France has been a hub for great gaming companies. It’s the home of companies like UbiSoft, and Gameloft, arguably the biggest mobile gaming company in the world.
- Arbitrage. Even though it’s surging, Paris’ startup hub is still nowhere near Silicon Valley’s, or even New York or London’s vibrancy. That seems like a drawback, but it’s actually a tremendous arbitrage opportunity. As has been established, Paris has plenty of amazing, cheap talent–and there’s much less competition for that talent. Google is much smaller, Facebook has like twelve people, and you don’t have hot flavour of the day startups that just raised $10 million with a napkin. Twitter and Zynga are both companies that want to be around 20 years from now, and so they should look at this as a long term investment. When Google opened an engineering office in New York in 2003, plenty of people raised eyebrows. Now it’s an amazingly prescient bet that has paid off hugely, both for New York and for Google.
- Quality of life. This one needs no explanation.