Tech ti­tan’s ad­ver­tis­ing fee fails to match pledge to help en­trepreneur­s

Pass­ing on the Trea­sury’s new tax raises tough ques­tions over the search gi­ant’s sup­port for SMEs

The Daily Telegraph - Business - - Technology Intelligen­ce - BAR­NEY DUR­RANT Bar­ney Dur­rant is the direc­tor of Blue­bell Dig­i­tal, a mar­ket­ing con­sul­tancy in West Sus­sex

Google’s email to cus­tomers this week would have come as a big sur­prise, as it an­nounced that from Nov 1, there would be a 2pc fee added to their spend on its ad­ver­tis­ing in the UK. A 5pc charge is also be­ing added for Google Ads in Turkey and Aus­tria.

This comes as a re­sult of the dig­i­tal ser­vices tax (DST), which ap­plies to rev­enues gen­er­ated by so­cial net­works, search en­gines and on­line mar­ket­places. To be li­able to pay the levy, com­pa­nies must be prof­itable and gen­er­ate more than £500m a year in global rev­enues.

The Gov­ern­ment brought in this levy on April 1 and it is in­tended to in­crease tax rev­enues from the in­ter­net gi­ants, who have been ac­cused of us­ing their global foot­prints to avoid pay­ing tax in some of their big­gest mar­kets.

The UK is Google’s big­gest mar­ket out­side of the US and a global leader in e-com­merce spend per capita.

Sim­i­lar schemes have been put in place in other coun­tries, hence the ex­tra charges in Turkey and Aus­tria an­nounced at the same time.

Google makes most of its huge an­nual rev­enues from the short text ads that ap­pear at the top of its search en­gine re­sults on mo­bile phones, lap­tops and tablets.

That in­cludes $15bn (£11bn) from ads on YouTube, which the com­pany ac­quired back in 2006 at a cost of $1.6bn. This ser­vice is of course free to users and in­cred­i­bly pop­u­lar, but is paid for by a charge to ad­ver­tis­ers ev­ery time some­one clicks on one of the ads served up along­side the search en­gine re­sults.

In­stead of tak­ing on DST as a cost of do­ing busi­ness in the UK, the at­ti­tude of most com­pa­nies to gov­ern­ment taxes, Google has cho­sen to pass it wholly on to its many cus­tomers here.

Al­though big brands do spend large sums on Google and YouTube ad­ver­tis­ing, it is in fact the thousands of smaller busi­nesses that use the on­line ad ser­vice that drive the ma­jor­ity of Google’s mas­sive prof­its. These busi­nesses will be hard­est hit by the sud­den and un­prece­dented ex­tra charges.

The 2pc tax ap­plies to any rev­enues gen­er­ated through ad­ver­tis­ing to Bri­tons or rev­enues made through fa­cil­i­tat­ing trans­ac­tions, such as food de­liv­ery plat­forms.

Pre­vi­ous es­ti­mates have sug­gested it would af­fect only around 30 com­pa­nies, but could in fact raise as much as £500m a year in badly needed ex­tra rev­enue for the Ex­che­quer.

Ama­zon has al­ready an­nounced the tax will be passed on to cus­tomers.

Like many tech com­pa­nies, Google has been quick to trum­pet how it is help­ing small busi­nesses dur­ing the Covid-19 pan­demic.

An­nounce­ments of ex­tra tools or free dig­i­tal train­ing have been rolled out. But this new move seems to im­ply that these con­cerns for small busi­nesses are more of a PR ex­er­cise, and per­haps are mainly aimed at get­ting more peo­ple to use Google ser­vices – so the search en­gine can profit from in­creased dig­i­tal us­age dur­ing lock­down and with more peo­ple work­ing from home.

As small busi­nesses across the UK strug­gle to sur­vive the broad eco­nomic dam­age caused by the coro­n­avirus cri­sis, the last thing they need is for their ad­ver­tis­ing costs to rise by an ar­bi­trary 2pc, just so that Google can cover its ex­tra tax bill.

There is no ex­tra ben­e­fit to the ad­ver­tis­ers from this 2pc price in­fla­tion, so ef­fec­tively it will make their ad­ver­tis­ing a lit­tle bit less cost-ef­fec­tive, just at the mo­ment when many may be de­pen­dent on driv­ing sales via dig­i­tal ad­ver­tis­ing and through sell­ing on their web­sites.

A knock-on ef­fect from this will also be to im­pact the many free­lancers or small dig­i­tal ad agen­cies that help busi­nesses get on­line across the coun­try.

Clients might choose to try to re­duce their spend or per­haps look to re­duce the fees that they pay small agen­cies by pass­ing on the cost of Google’s tax-re­lated in­crease to them. This risks the rev­enues of those busi­nesses and is an­other neg­a­tive im­pact of Google’s de­ci­sion that flows down the in­ter­net ecosys­tem on which it sits astride.

When Philip Ham­mond brought in this tax, the ex­pected out­come was to get more rev­enue from the global tech gi­ants that were ac­cused of ex­port­ing large prof­its from UK con­sumers and com­pa­nies through com­pli­cated schemes to Ire­land or Am­s­ter­dam – and there­fore re­duc­ing their tax li­a­bil­ity to the Gov­ern­ment.

How­ever, the Google an­nounce­ment this week seems to show that the search gi­ant has no con­cern for this in­ten­tion and is happy to pass the buck to small busi­nesses across Bri­tain – most of whom don’t have the op­tion to min­imise their tax bill in the way that the firm con­tin­ues to with­out a sec­ond thought.

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