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, a newspaper reported on Thursday.

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 previously caused controversy 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, newspaper 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 point out 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 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.

(Editing by Matthew Jones)

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