About Google’s Ad Regulatory Fees

If you are using Google Ads in your marketing mix, you might receive a mail from Google announcing that from 1 November 2020, it will be charging new fees for ads served in the United Kingdom, Turkey, and Austria.
This means that you will see an additional fee in your ad invoice or statement as a separate line item per country.

At this moment, there are three countries involved, mirroring the rates of new Digital Services Taxes  (DST) that have come into force in those jurisdictions:

• For ads served in Turkey, there will be a 5% Regulatory Operating Cost added to your invoice or statement
• For ads served in Austria, there will be an additional 5% Austria DST Fee added to your invoice or statement
• For ads served in the United Kingdom, a 2% UK DST Fee will be added to your invoice or statement.

Google explains that the Regulatory Operating Costs are being added due to significant increases in complexity and cost of complying with regulations in Turkey. As for what concerns Austria and the United Kingdom, the DST fee is driven by the new digital services tax in these countries.

Google declares that they “will encourage governments globally to focus on international tax reform rather than implementing new, unilateral levies.”

Amazon was the first to pass the UK digital tax to sellers in August, but we can expect Facebook, Apple, and LinkedIn to do the same.

Observe the pattern that these giants are passing the taxes to their business customers, who have already been hit hard by the pandemic. Although this is not a big percentage of tax, it can negatively affect a lot of businesses, and cause disproportionate budget cuts for small, struggling companies.

As long as there is no international consensus on the regulations concerning digital services taxes, countries can pass taxes to digital multinationals as they see fit. We might expect that in the near future, we will meet these fees in other countries too. Below, you can see the current status of digital service taxes in European countries:

Source: KPMG, “Taxation of the digitalized economy” and Bloomberg Tax, “BEPS Tracker - Action 1: Digital Economy”)

What do the Regulatory Fees mean for advertisers, and how can they prepare for the changes?


Impact on Budget

Starting from 1 November 2020, advertisers from the three countries involved (Austria, UK, Turkey) can expect to pay more for ads and should adjust their strategies accordingly. These fees will be added above the total monthly budget and will be seen only in the billing section, so advertisers should keep this in mind when adjusting their budgeting plans.

Below, you can see an example of what happens after 1 November in case you do not change anything in your Google Ads Account.

You can learn more about country-specific fees and quickly find out if the list will be extended with new locations on Google Ads Support Page.

Targeting Adjustments

The regulatory fee is applied depending on where the ad is served, so if you are a company based in the UK but promoting only to Germany, you won’t be paying any extra fees.

Even so, any advertiser should pay attention to campaign settings: if you are using Google’s predefined “People in, or who show interest in, your targeted location” location targeting setting, this means that extra taxes could occur if somebody who is located in one of the tax paying countries searches for your services or products.

Continuing the above example, if somebody located in the UK is clicking on an ad of an advertiser whose services are located in Germany (ex. "kayaking Germany"), additional fees will occur. Even though the advertiser set Germany as their target location, because of the “People in, or who show interest in, your targeted location” setting, Google considers this search term useful and will show the related ad in the UK as well.

The advertiser from Germany with “People in, or who show interest in, your targeted location” location targeting setting will pay the additional tax for this click that occurred in the UK.

If you do not want to appear in any searches outside of your target zone, you should switch from the predefined “People in, or who show interest in, your targeted location” to “People in or regularly in your targeted locations”. This way, no matter the context, Google will show your ads only for people who are searching in your targeted location.

Evaluation Strategies

You can start to evaluate the following anytime:

  • Review your location reports in order to see how many impressions and clicks are currently coming from the three affected countries, at what costs. If you would like to keep the “People in, or who show interest in, your targeted location” targeting option but don’t want to serve ads in the affected countries, you can exclude those three from your campaigns.
  • These new taxes won’t be reflected in the costs-per-acquisitions (CPAs). So it is recommended to analyze your performance now, recalculate the CPAs to know the new acquisition costs. Based on the results, you can adjust your plans to keep your campaigns as efficient as before. Right at the start, changing budgets and bids, location-based bid adjustments or CPA based bidding strategies will be helpful keeping your current key performance indicators (KPIs).

On the one hand, we would like to think that at least for a while, there will be no additional countries on this list, but on the other hand, we'd recommend you to be prepared for any future changes.

Now you can see what kind of measures you can take in order to have a better understanding of your Ads Account, and what kind of additional account changes you can make right now to avoid future tax-related surprises. Sure enough, we will prepare for the upcoming changes ourselves, however, we cannot exactly agree with the direction Google has set, at least not in this form, not without any international consensus on these regulatory taxes.

If you feel like the upcoming regulations might lead you to slip out of your control and you need additional assistance, contact us for personal consultancy.

Written by: Zsuzsa Menyhárt, Digital Marketing Specialist @Cognitive Creators