Is it fair for Google to pass on the Digital service tax to customers?

Google is passing on the entire cost of a new UK digital services tax to advertisers, the company told brands today.

Google’s revenue recently hit £1.6bn, pays only £44m in corporation tax – and yet today wrote to companies to announce that a new 2% charge will be applied to ads served in the UK from 1 November. Similar measures are being introduced in Austria and Turkey, Google announced, where the charge will be 5%.

Google’s revenue recently hit £1.6bn, pays only £44m in corporation tax

Agency sources say that the 2% UK levy will apply to media spend on Google’s ad network, Google Ads (Adwords).

This move will be a massive blow to struggling advertisers that are already facing ever increasing CPC (cost per click) fee rates.  It also puts the emphasis for agencies and digital advertising service providers like Jerram to improve conversion rates and lower the overall click through costs per campaign.

The UK’s DST (digital service tax), announced by former chancellor Philip Hammond, is intended to be a temporary measure until a global levy is agreed. It is meant to apply to digital companies with revenues above £500m.

In a statement, Google added: “Digital service taxes increase the cost of digital advertising. Typically, these kinds of cost increases are borne by customers and, like other companies affected by this tax, we will be adding a fee to our invoices, from November. We will continue to pay all the taxes due in the UK, and to encourage governments globally to focus on international tax reform rather than implementing new, unilateral levies.”

In my opinion, warning government that you are going to pass this buck isn’t the same thing as being helpful to either the UK economy (by paying a fair rate of tax for profits generated in the UK) – or fair to your customers.

It is about time there was a level playing field for digital advertising. Perhaps now more advertisers will look towards alternative platforms for their digital ad spend? Facebook and Microsoft are understood to be making announcements about the tax soon, while eBay has announced it will absorb the tax rather than pass on the cost to buyers and sellers.

We will wait and see what happens when the global levy is announced.