Google is to pass the cost of the UK’s digital services tax on to advertisers, adding more than £120m to marketers’ costs annually, as the government’s attempt to get tech giants to pay more to the exchequer is billed to their customers.
Google has told its tens of thousands of clients that from November it will charge an additional fee for ads served on Google and YouTube. The move will increase advertisers’ costs in line with the amount the tech giant is set to pay in new digital services taxes as they come into force: 2% in the UK, and 5% in Austria and Turkey.
Earlier this month, Amazon said that it would be passing on the 2% tax to sellers on its platform. With Google doing the same, Facebook, which makes an estimated £4.2bn in ad revenue in the UK, is expected to follow suit.
“Digital service taxes increase the cost of digital advertising,” said a Google spokeswoman. “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.”
Google UK reported £1.6bn in revenues last year, up from £1.2bn, but paid just £44m in UK corporation tax as it does not report big profits.
However, this does not reflect how much it makes in total advertising revenues as they are reported in other jurisdictions. The research firm eMarketer estimates that in reality Google made about £5.7bn in ad revenue in the the UK last year, accounting for 39% of that total digital ad market, and will make over £6bn this year. The 2% tax equates to about £122m on those revenues.
In June, the UK and other European countries said they would still implement a digital tax despite the US pulling out of negotiations with the OECD to implement an internationally agreed version.
Phil Smith, the director general of ISBA, which represents UK advertisers, said that Google’s move was “disappointing but inevitable”.
“We have been consistent in warning government of the potential consequences of this approach, including an increase in costs to advertisers in the UK market,” he said.
