On Tuesday, Google informed its advertisers of new fees that would be charged for ads running in Austria, UK, or Turkey. In these three countries, Google is passing on the new digital services taxes (DST). These fees will be levied at an additional 2 percent in the UK and 5 percent in Turkey and Austria. Moreover, the fees will be subject to any relevant taxes, such as QST, VAT, or GST applicable in the country, and advertisers will also have to pay any taxes valid in these countries.
The DST in the UK has been under development for several years now and was announced back in March. The tax aims to collect revenue from digital companies, such as Facebook, Google, and Amazon, that are worth at least £25 million in the UK and £500 million globally.
However, Google is not the only company that’s announced such a change. In August, Amazon informed its sellers that it’d pass the 2 percent DST in the UK from 1st September. This fee is applicable to monthly storage fees, referral fees, multi-channel fulfillment fees, and fulfillment by Amazon fees.
When such costs increase, they are borne by the customers and, hence, they will be added to invoices from November.
DST Objective And Controversies
The objective of DST is to ensure digital businesses, like search engines and social media platforms, pay the tax that reflects the value they derive from users. However, this objective has raised controversies because of the questionable ‘value creation’ principle and unclear distinctions.
In a research paper, the timing of DST is controversial, predicting a negative impact on the UK and the US negotiations on the post-Brexit trade. DST is thought to be a temporary, unilateral measure to resolve flaws concerning the international tax system. The DST adoption may be a strategic move but risky because it’s not pro-US companies.
DST significantly impacts advertisers and clients down the line. But questions about fair tax practices all boil down to imposing taxes on companies that make considerable amounts of money, whether offline or online. There could be loopholes, resistance, and many other controversies, but the DST is now part of the new normal in the rapidly growing digital landscape. Advertisers need to decide and think very carefully whether they’re willing to absorb the extra cost or pass it down to clients or customers.
Will Facebook follow Google and Amazon?
While it’s still unclear whether Facebook plans to take this approach and pass these fees to advertisers, it did start passing a 6 percent service tax on ads sold in Malaysia to its advertisers’ invoices from 1st January.
For advertisers, it’s important to prepare for these changes by taking several things into account. Firstly, since the fees will be added on the top of the account budget, it needs to be taken into account during budgeting. For instance, a budget of £100 pounds will incur £2 in DST fees for ads in the UK. This brings the billing amount to £102, in addition to any relevant taxes, such as VAT, that would be applicable in the country. Using a VAT calculator will help advertisers and business owners obtain an accurate computation without dealing with complex formulas.
Additionally, advertisers need to evaluate how much this impacts them. These fees need to be accounted for when selling products and services in any of these countries. Since they will impact the cost-per-acquisition (CPA), you should take a look at your performance and how you can maximize the efficiency of your ad campaigns.
Lastly, advertisers should also focus on their targeting. If, for instance, you’re not serving in any of these countries mentioned above, you need to exclude the people in these locations to avoid the fees.