Google announced on Tuesday that it will be passing on the full amount of the UK’s Digital Services Tax (DST) to online advertisers.
The search and digital services giant notified companies who use its Google Ads platform that the full 2% cost of the DST will be met with a corresponding rise in prices from November 1st 2020.
The Tax was announced by previous UK Chancellor of the Exchequer Phillip Hammond in late 2018. It is widely seen as an interim measure to raise revenues and temper runaway profits until a global levy on digital services can be agreed and put in place.
But it is unexpected that Google, whose parent company Alphabet posted revenues of $38.3bn in Q2 of this year, would have chosen not to absorb any of the cost and pass on the full amount of the levy directly to its customers.
What we think
This is an extreme, unilateral move from Google in response to what it sees as an extreme, unilateral move on the part of the UK government.
It’s a bad time for Google to be playing hardball, with advertisers and the wider global economy struggling to recover effectively from the most unpredictable and difficult economic scenario in generations.
The UK’s digital industries and agencies like Anything is Possible are best placed to lead the bounce-back, but doing so with these unforeseen and avoidable pressures will make the road to recovery more challenging.
While the most successful companies in the world cannot be fairly expected to bear the full burden of the DST by themselves, it is unfortunate they have decided to offload all responsibility for this situation onto the organisations who rely on their services to exist.
What it means for now
It is inevitable in the short-term that the prices agencies like Anything is Possible charge for Google Ads and related products will have to increase.
We know that some clients may feel they have to have to adjust their spend and ambitions in response. Our account teams will follow up shortly and book-in a session to discuss the ramifications for your account.
For those most deeply affected, we will work side-by-side to develop a strategic campaign mix that takes the rises into account, and continues to deliver the greatest cost efficiency and effectiveness for your circumstances.
What happens next
We know that a position statement from Facebook is likely to be forthcoming in the next few weeks, and we should be prepared for them to take a similar hard line position to Google.
UPDATE 3/9/20: In a move sure to win favour with the small retailers they are currently actively courting, Facebook has in fact decided to absorb the cost of the DST themselves.
With Rishi Sunak shown to be taking a more proactive and interventionist approach to the UK economy than his predecessor, and dealing with the acute economic fallout from the coronavirus pandemic, there is scope for productive negotiations to resolve what is a difficult situation for UK brands and agencies alike.
We will continue to monitor this situation closely and keep all our clients apprised of any new developments in the run-up to November. We expect however that the charges will be applied in some degree until a preferable agreement can be reached.
If you are concerned how this will affect your current and future campaigns or have any questions in the first instance, please just get in touch and we will be happy to discuss the situation.