As of 1 October 2021, Google will include a surcharge on invoices and statements for ads that are purchased through Google Ads and for YouTube placements purchased on a reservation basis to cover the Digital Services Tax. This will cover ads that are served in the following specific locations:
- Ads served in Austria: A 5% Austria DST fee added to your invoice or statement
- Ads served in France: A 2% Regulatory Operating Cost added to your invoice or statement
- Ads served in India: A 2% Regulatory Operating Cost added to your invoice or statement
- Ads served in Italy: A 2% Regulatory Operating Cost added to your invoice or statement
- Ads served in Spain: A 2% Regulatory Operating Cost added to your invoice or statement
- Ads served in Turkey: A 5% Regulatory Operating Cost added to your invoice or statement
- Ads served in the United Kingdom: A 2% UK DST fee added to your invoice or statement
These are being added to cover a portion of the costs associated with complying with digital services tax legislation.
What is Digital Services Tax?
In the UK, the Digital Services Tax (DST) is a 2% additional tax on the revenue of search engines, social media services and online marketplaces which profit from UK users.
In the past these large multi-national enterprises would derive revenue from UK users but would be taxed under their registered business location. This location would often be at a lower rate of tax. Under the current international tax framework, the value businesses derive from user participation is not taken into account when allocating the profits of business between different countries. The DST has aimed to increase the proportion of tax that is paid on the UK sourced revenue.
Who does this affect?
The Digital Services Tax (DST) will apply to businesses that provide a social media service, search engine or an online marketplace to UK users. These businesses will be liable to DST when the group’s worldwide revenues from these digital activities are more than £500 million and more than £25 million of these revenues are derived from UK users.
If the group’s revenues exceed these thresholds, its revenues derived from UK users will be taxed at a rate of 2%.
There is an allowance of £25 million. Which means a group’s first £25 million of revenues derived from UK users will not be subject to Digital Services Tax.
The provision of a social media services, internet search engines or online marketplaces by a group includes any associated online advertising service. This focusses on online advertising that derives significant benefit from its association with the social media service, search engine or online marketplace.
What these changes mean for small businesses
This additional tax is expected to have an impact on a small number of large multinational groups. This is done by bringing in Digital Services Tax to target the proportion of their revenue that is derived from UK users of social media, search engines or online marketplaces. The policy will be delivered through a Digital Services Tax charge reported and collected under new provisions.
However, the companies who are being targeted by the additional tax are not taking it lying down. Google itself is choosing to pass this additional charge on to its advertisers. While unlikely to change the minds of advertisers, some may re-evaluate budgets in order to keep the tax within their advertising spend.
For more information on the Digital Services Tax click here.