Digital marketers understand better than anybody how a lot of little things can add up to have a big impact. The halcyon days of the early internet era are no longer—not only did sales tax eventually come to online purchasing, but we are also seeing the beginning of extra taxes on digital services.
As announced in the fall, Google increased the price of ads in Turkey and Austria by 5% and the UK sees an additional 2%. This was the initial roll-out, and we’ve seen additional fees added to France and Spain (2% in both cases). This isn’t some shocking surprise out of nowhere—it was merely the first domino to fall.
The Cost of Doing Business
Google cites the reason for these extra fees have one thing in common: government regulations. As Google announced in an email to Google Ads customers: “The Regulatory Operating Costs are being added due to significant increases in complexity and cost of complying with regulations.” Google’s not being coy about its feelings or who we should blame for these new costs. These fees appear in a specific line item on your bill so you know exactly which piper you’re paying.
Irish Double, Dutch Sandwich
That’s not an order at the pub, that’s a method of “tax minimization” used by lots of companies. It specifically refers to the process of, for instance, registering IP in Bermuda.
According to CNBC, Google had a subsidiary in the Netherlands. “The subsidiary in the Netherlands was used to shift revenue from royalties earned outside the United States to Google Ireland Holdings, an affiliate based in Bermuda, where companies pay no income tax.”
Everything Google did was legal, if convoluted, which is why new regulations and taxes have been added to the cost of doing business in the countries specifically named in Google’s messages to advertisers.
Just in case you didn’t know already, Google wants to be clear about this: these are taxes levied by governments who have seen Google make truckloads of money from the people who live within their borders and have not received what, to them, is adequate compensation to their government’s coffers. Their response has been to create fresh new taxes. For the record, Google has discontinued these practices as of last year.
Officially, Google calls these fees Regulatory Operation Costs (ROC) and says they, “are being added to cover part of the costs associated with complying with digital services tax legislation in France and Spain.”
In other words, they aren’t necessarily the same as the tax Google faces from an individual country. For example, France’s current digital ad tax rate is 3%, but Google is charging 2% (for now).
When we say this is just the first domino, we’re not just referring to Google’s new tax mitigation strategy (by increasing the ad spend for advertisements in these five countries by a few percent), but the slow awakening of these giants to the money passing under their noses. We would expect that Google is not only going to add more countries to its list of tax-increased ad spenders, but that other companies will likely follow suit. If Facebook or eBay adds a few additional coins to every click they facilitate, you heard it here first.
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