Google to pass on cost of 2% digital tax to UK advertisers

Google is passing on the entire cost of a new UK digital services tax to advertisers, the company told brands on 1 September.

The digital services behemoth wrote to companies this morning 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%.

Agency sources told Campaign that the 2% UK levy would apply to media spend on Google’s ad network, Google Ads. It does not apply to spend on DV360, Google’s demand-side platform, in which programmatic ads are bought via an online auction.

Amazon announced that it would pass on the cost of the 2% digital tax to marketplace sellers this month, which would increase operating costs for direct-to-consumer retailers that depend on the platform.

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.

Phil Smith, director general of ISBA, said: "While this is disappointing news for our members, it is the inevitable outcome of the UK's unilateral approach to digital taxation. We have been consistent in warning government of the potential consequences of this approach, including the risk of an increase in costs to advertisers in the UK market. 

“With further headwinds from government hitting the advertising sector in the coming years, it's time government proved that they recognise the importance of the sector to the economic recovery." 

The UK’s digital 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 £500 million. 

Jon Mew, chief executive of ISBA, an industry body, said: “Given the nature and design of the Digital Services Tax (DST), it’s not unexpected that, as a revenue-based tax, it is applied in practice as a business cost – an outcome we anticipated in our response to the government's draft guidance last September, as well as our initial consultation response. 

"The government has had clear forewarning from IAB UK – as well as other industry bodies – that the tax will likely have a knock-on effect across the digital ecosystem, with unintended impact on demand and supply throughout the UK’s digital supply chain."

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."