THE SCENE France’s high price of electricity could temper its surprisingly hot AI boom. Paris has become a major player in the growing industry, aided by generous tax credits that help startups pay for expensive compute power. But the terms of those incentives might threaten its status. Besides homegrown powerhouse Mistral, some US-based firms such as Poolside and Raive have moved to France or opened up offices there to take advantage of the country’s math talent, which is helpful in advancing complex AI architectures, and its tax benefits. It’s now home to about 600 AI startups, according to France Digitale, and French President Emmanuel Macron praised the industry last week, saying it would help Europe compete against China and the US.  Nadja Wohlleben/ReutersThe main subsidy that benefits tech companies is called the Crédit d’Impôt Recherche, or the research tax credit, which offers incentives ranging from 30% to 60% of R&D expenses, including employee salaries. The subsidies also effectively cover the first-year salary of PhD students after they graduate, if they work in R&D. By most measures, the R&D tax credit has been a huge success. For about €6.5 billion in annual cost as of 2018, the French government estimates it will, in the long run, add 0.8% to the country’s GDP and create 60,000 jobs. But a major gray area covers one of the biggest, if not the biggest, expense of many AI companies, which is the training of AI models with costly and powerful GPUs. If a company buys GPUs for R&D purposes, it gets a 60% tax credit. If they rent the GPUs from a cloud provider, the subsidy doesn’t apply, tax experts say. But buying the GPUs and receiving the tax credit isn’t so simple. That’s because vague language in the measure makes it unclear whether those GPUs have to stay in France, where electricity costs are prohibitively expensive to train AI models, a task that needs a lot of energy. Ultimately, the parliament would have to decide on whether and how to clarify the rules, but nothing has been finalized, according to French officials. That leaves startups weighing whether the tax credits, which one venture capitalist noted were so valuable that they amounted to another funding round, are worth incurring high electricity expenses. Some startups and advisors to French companies say that the law as it is written should cover the costs of training AI models, no matter who owns the GPUs or where they are located. The AI startup Mistral, which has become a kind of symbol of the AI renaissance happening there, has chosen to train its AI models with cloud providers outside the country. That includes Microsoft, which inked a partnership with Mistral earlier this year to provide supercomputing infrastructure. Two people with knowledge of the matter said Mistral’s decision to use outside compute resources, rather than build its own infrastructure inside France, was at least partly due to tax policy. Mistral did not respond to a request for comment. Microsoft earlier this week announced that it was investing €4 billion in cloud and AI infrastructure in France, bringing up to 25,000 of the most advanced GPUs to the country by the end of 2025. A Microsoft spokesman said it won’t receive tax subsidies for the investment. | 
