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What do advertisers need to know about the new Digital Sales Tax?

The new Digital Sales Tax: What advertisers need to know

September 23, 2020 Digital channels

Countries around the world have been introducing ways of taxing digital advertising at the point of sale to increase tax revenues from the large digital media companies.

So far, these moves seem to have backfired as some of the largest players are simply passing the tax straight on to advertisers. For example:

  • When France introduced a 3% levy in July 2019, Amazon increased its charges for small business sellers by the same amount and we are now seeing the same response in other markets.
  • When the UK implemented a 2% Digital Sales Tax in April 2020, Amazon warned they would pass this charge onto their customers. Since the start of September, that is what they have done.

 

Google is now passing on the tax in the UK, Austria and Turkey

Google has written directly to UK advertisers with news that they intend to pass on the full 2% cost of the UK Digital Sales Tax from 1 November 2020. For international advertisers, Google intends to add 5% additional charges to paid media budgets in Austria and Turkey, from the same date:

  • The Austrian charge is to cover their Digital Sales Tax charges.
  • The Turkish charge is to cover Regulatory Operating Costs which are being added due to ‘significant increases in complexity and the cost of complying with regulations’.

The tax will be based on digital advertising spend on Google Ads and YouTube in each applicable market and will be charged based on where ads are served, rather than where they are booked.

This is clearly not welcome news, especially in the current climate, and it is disappointing that Google has decided to pass the entire tax on to advertisers.

It is essential that advertisers understand how these charges will be passed on, particularly for manual and prepaid accounts where the fees may be charged once the budget has already been spent – leaving you with an open balance that will then be taken from your next payment.

Coming part way through a difficult trading year, these additional charges throw up budget challenges for advertisers who may need to find extra funds with relatively short notice.

It will also create challenges for performance-based marketers as these three markets – the UK, Austria and Turkey – will immediately provide less good value for money. It is the cost of doing business, but will mask genuine digital performance in all three markets.

Advertisers who shift budgets between markets to drive performance, or who use automated bidding across markets, will need to decide how to manage the additional charges to avoid accidental budget overspend.

 

What about the other large digital media owners?

eBay has said it will absorb the costs itself and will not be passing the tax on to advertisers. This may generate some goodwill, but Amazon are so predominant that any sizeable business will struggle to switch significant funds from Amazon to eBay and maintain volume sales.

Facebook, after some deliberation, has decided not to pass the tax on to advertisers, though they qualified this decision with the words ‘at present’. Given its drive to build commercial relationships with small businesses, many of which are struggling, this will be a welcome decision.

Apple is passing on the costs to advertisers via the App Store, with a larger 7.5% hike in Turkey’s costs, to reflect Turkey’s Digital Sales Tax.

We are still waiting to hear from other big players such as Microsoft Ads (formerly Bing Advertising).

These decisions may lead to more complex budgeting processes and conversations, as well as affecting acquisition costs. Businesses will need to account for the additional taxes from Google in their budget planning and approvals to avoid overspend on any campaigns or business-as-usual activity from November.

The response to Digital Sales Tax is evolving and may develop further over the next few months.

 

Oban can help

If you would like to discuss the implications of these changes or require support with your international media planning and buying, please get in touch.


Mike Turnham, Head of Delivery

Mike Turnham | Head of Delivery

Oban International is the digital marketing agency specialising in international expansion. Our LIME (Local In-Market Expert) Network provides up to date cultural input and insights from over 80 markets around the world, helping clients realise the best marketing opportunities and avoid the costliest mistakes.