Digital tax: This is why Google Ads may cost more in the future

04 min

There are new fees: In the UK, Turkey and Austria, a digital tax will be due in the future, which Google will pass on one-to-one to its Google Ads customers. This means that ads in these countries will become more expensive. As of November 01, 2020, the time has come. This is what Google Ads users can expect then:

Austria: 5% digital tax on invoices for delivered Google Ads.
United Kingdom: 2% digital tax on invoices for delivered Google Ads.
Turkey: 5% statutory operating costs on invoices for delivered Google Ads.

While Austria and the UK are simply introducing new digital taxes, Google says the reason for the cost in Turkey is more complex requirements and rising legal compliance costs for ad delivery.

Why is there the new tax now?

Big U.S. corporations like Apple, Microsoft, Google and Co. definitely don’t actually need to cut corners. Nevertheless, they take advantage of tax loopholes whenever possible. Therefore, funds and profits are shifted back and forth to pay taxes where there is little or none anyway. Pretty clever in itself ­– but not for the local entrepreneurs and taxpayers. Through these, one could almost say, competitive advantages, the large corporations manage to monopolize themselves more and more. For this reason, some countries in Europe want a change in the whole thing. This is where the concept of a digital tax comes into play.

When exactly do this taxes apply in the first place?

Taxes are due for all corporations in the digital industry that provide services in Austria, the UK or Turkey.

But be careful: You should know that it is not relevant for digital taxes that your company is based in one of these three countries. No, it is more about the fact that you place advertisements in these countries via Google, Amazon and Co. Otherwise, this concept of digital tax would not work at all, since large corporations would once again get off scot-free.

The two examples show you how you can be affected by the digital tax:

  • You focus your campaigns on the DACH region. In this case, you should consider the 5% digital tax in Austria – Switzerland and Germany, however, remain unchanged.
  • Your campaign is only targeted at Germany, but Google users are interested in this target region, which is why the ad is displayed to them in their location (e.g. Austria). This means that your ad, which is actually targeted at Germany, will also be played in Austria and the digital tax will be due.

Thus, it is not the location of the company that is relevant, but that of the user who receives the Google Ad.

This is how Google and Co. are now dealing with it

The search engine giant is now making things relatively easy for itself: It is simply adding the tax to existing prices instead of bearing it itself. Amazon also wants to proceed in a similar way – other companies will probably follow their example.

The Google Payments team passes on the following information to the invoice recipients of the respective ads accounts via newsletter:

  • These fees will appear on your invoice or statement as a separate line item per country. They will also appear in your Google Ads account in the “Transactions” section. You will be charged for ads presented in the above countries.
  • Any taxes, for example, sales tax, VAT, GST, or QST, that apply in your country may also apply to the new charges.
  • If you have set up monthly billing or automatic payments, these fees will be added on top of your account budget. For example, if you have a budget of 100€/100£ and a digital tax of 5€/5£ applies to ads delivered in Austria, you will be charged 105€/105£, plus any taxes such as sales tax, VAT, GST, or QST that may apply in your country.
  • If you make manual payments, you may not be charged until the payment is fully consumed. Therefore, an open balance may be recorded, which will be automatically deducted from your next prepayment. For example, if your account incurs a 5€/5£ legal operating fee for ads presented in Turkey and you make a new payment of 100€, you will be left with a 95€/95£ balance for ad delivery (100€ – 5€ or 100£ – 5£). This value will also be displayed as your available credit.

However, Google is keeping quiet about further information in its usual manner.

This is the best way to deal with the digital tax

Unfortunately, you don’t have many options here… First and foremost, as a Google Ads user, you can’t really do anything about the fact that taxes are added to your invoices. However, there are strategies you can follow:

  1. Split DACH campaigns:

Sure, it might make more work at first and not make much sense to run multiple German-language campaigns. Nevertheless, you should split the campaigns to be able to plan your budgets better.

  • Keep an eye on your media budgets:

Remember that your costs will increase now. Make adjustments so that you don’t exceed your budgets.

  • Inform stakeholders about the digital tax:

In the end, it’s hard to avoid anyway. On the one hand, the company’s stakeholders have a clear interest in seeing that budgets are met, but on the other hand, they also want the ads to work well. So talk to them to clarify how you want to proceed in the future. For example, if you currently have a budget of 100€, you should clarify whether only 95€ of the budget will be invested in ads, or whether they are willing to spend 105€ in order not to weaken the performance of the ads.

 

Lara Meyer completed her bachelor’s degree in business administration, specializing in media business administration, at the University of Applied Sciences in Würzburg. As part of the eology marketing team, she takes care of the dissemination of the collected eology knowledge by sharing her know-how in magazines, blogs and journals.

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