Following suit with Amazon’s move, advertisers in the UK, Turkey, and Austria are going to feel the impact of the UK’s new Digital Service Tax (DST). The additional cost will be passed directly through to advertisers.
The fees will kick in starting November 1. Advertisers running ads in Austria and Turkey will have a 5% tax, and advertisers in the UK will have 2%.
“Any taxes, such as sales tax, VAT, GST, or QST that apply in your country will be charged in addition to the new fees,” – Google help page
The main target of the DST are the large digital media companies, namely Google, Amazon, and Facebook. The threshold is for digital companies that have at least £500m in revenue, and specifically £25m in the UK.
Amazon announced the increase in August, with a start date of September 1. Their fee applies to a range of their services, which differs some from a more straightforward ad environment such as Google Ads. Due to their e-commerce footprint, the fees applied will include FBA (Fulfillment by Amazon) and fulfillment fees.
Facebook hasn’t issued a statement yet, but it’s widely expected they will issue a similar statement and process.
How This Impacts Advertisers
These new taxes will be in addition to the advertiser’s monthly budget. They are not deducted from the budget already input to Google. Advertisers will pay the total of their ad charges and then a separate line item for this tax (along with any other applicable ones).
Google also notes that if an advertiser uses manual or prepayment, this might results as an additional charge. It will not apply the taxes to prepaid funds.
This also means that all calculations done within the account itself will not reflect these fees. Things like CPC, cost per conversion, etc. will reflect ONLY the media spend, and not additional taxes. Advertisers should factor this into their calculated return from advertising, and look at historic data to get a sense of what the adjustments may look like as this takes effect.
Advertisers may also want to check out what proportion of their spend and targeting go towards the UK, Austria, and Turkey as well. This can give additional context around overall impact, and possibly help advertisers decide if they want to stop their ads there altogether.
These considerations should also be taken into account for time of year it’s hitting: fourth quarter holiday shopping. The spend, revenue, and therefore total amount being taxed will vary versus other times of year. Many retailers slash prices for Black Friday, sacrificing margin for volume. This makes the piece about spend totals in the account not including the taxes another crucial factor for this time of year.
Google has updated their help page with additional information on the Digital Service Tax and details about it here.