As of April 2020, the UK government introduced a new 2% Digital Services Tax affecting large multinational companies generating revenue from social media advertising, search engines or online marketplaces.
But as a business owner or head of marketing, how does this rule change affect you and your brand’s marketing budget? Let’s find out.
The threshold for being charged the new tax is where worldwide revenues from digital activities exceed £500m and more than £25m of that total is generated from UK-based customers. It’s also worth noting that any other taxes such as VAT will be charged in addition to the tax.
The UK isn’t the only territory feeling these effects – the same rule has also come into force in Turkey and Austria with their taxes sitting at 5%. A few obvious multi-national companies that are feeling the effects of this new tax include Google, Facebook and Amazon, for example.
Despite Amazon stating recently that it would not pass its 2% tax to businesses and individuals advertising on the platform (although it has passed it on to its sellers), Google has very much pressed on with its plans to charge the tax out to businesses who choose to advertise and compete for the top spot in its world-dominating search engine.
Realistically, with the money Google generates every year through paid-advertising, does it need to pass the buck for the sake of 2%? Most would argue not. But sadly our favourite search engine has decided that this is the model it wishes to apply and more superpowers in the digital arena could follow suit in the future.
Google brought it into effect from the 1st November 2020 so if your business is advertising through Adwords for example, you will now need to pay an additional 2% charge on top of your digital marketing spend for the privilege.
Facebook and other social media companies are yet to show their hand and could still decide to reconsider their position in the coming months. However in the case of Facebook, given the ill feeling towards the brand this year for its handling of hate speech and misinformation as part of the #StopHateforProfit movement, you would think any decision to pass on its taxes would be delayed to avoid incurring further negativity. Facebook’s reputation has already taken a beating from the saga and it can ill afford another knock to its image and lose 1,000’s more advertisers in the process.
In the case of Google, it’s a catch 22 scenario for many businesses because even if the news of this tax isn’t welcomed, being seen by customers through Google ads is a necessity to satisfy brand awareness and lead generation. Many begrudge paying the extra, but at the same time they can’t afford not to, given the current climate.
Google remains one of the best ways to promote any business. Its ability to generate website traffic and create leads is immense and when used correctly, really delivers results. Naturally we advocate strong organic digital marketing through carefully crafted SEO, but topping this up with Google Adword spend is no bad thing.
In the meantime, we sit with bated breath and wait to see if other multinationals decide to pass the buck in 2021 or beyond.
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