The UK ‘2%’ digital services tax and what this means for advertisers

Google and Amazon have announced that they are passing on the entire cost of a new UK digital services tax to advertisers, leading to repercussions across the entire digital ecosystem, with unintended impact on demand and supply across the UK’s digital supply chain.

 

Earlier this year, the UK government announced that it was introducing a digital services tax to collect 2% of online revenues made in the UK by companies with overall revenues greater than £500m, such as Facebook, Google and Amazon. HMRC has estimated that the new tax could lead to as much as £515m in additional annual income by the conclusion of the financial year ending in 2025.

Ebay, for their part have responded in a different direction to the majority of the major tech giants, publicising that they would absorb the tax rather than pass on the cost to buyers and sellers.

Apple have responded by changing the way it pays developer fees on the App Store in the UK. In addition to the usual 20% VAT it pays to the government on each purchase, it’s adding an extra 2% before splitting the remainder between the app developer and Apple, meaning less money for both.

Google on the other hand has announced that the new 2% charge will simply be passed on to advertisers, applying this to ads served in the UK on Google’s Ad Network, Google Ads, although not on the demand-side platform DV360, where you can buy ads programmatically via an online auction.

Amazon too have announced that it would pass on the cost of the 2% tax onto marketplace sellers, therefore increasing operating costs for direct-to-consumer retailers that rely on the platform. With both Google and Amazon passing on these costs to advertisers, Facebook is also expected to follow suit.

These ‘pass it on’ notions are not just happening in the UK, either. Originally, European countries were intent on coming together to spearhead a new global tax on large tech companies, however negotiations went sour when the US refused to go along with it. Some European nations, including the UK, France, Germany and Italy went ahead regardless and introduced their own digital services tax. In a lot of cases, these tech giants are just raising prices, such as in Turkey where prices are rising by as much as 5% for advertisers on Google Ads and 7.5% for consumers on Apple’s App Store.

Until the time where a new global framework for tech taxation is put in place, with ultimately America’s seal of approval, we are stuck in limbo, with the tech giant’s clear message for these current unilateral levies being: try to make us pay more and we will just pass it on.

At Generation media we strive to negotiate and deliver the most cost effective media for all our clients. Although this will be an additional hard cost which will affect the majority of our clients, we will always look to try and find additional savings that allow us to deliver the same fantastic value as before.