MAR. 3, 2021

STEPHANIE SOONG JOHNSTON

Google advertisers that show ads in France and Spain will soon have to pay extra surcharges because of the digital services taxes in those countries, the company has confirmed.

The company emailed a notice to Google Ads customers March 2 stating that it would add the fees to advertising invoices starting May 1 because DSTs increase the cost of digital advertising, according to Google spokesman José Castañeda.

“The surcharges are to cover part of the costs associated with complying with the digital services taxes now in force in those countries,” Castañeda said in an email to Tax Notes. “We encourage governments globally to focus on international tax reform rather than implementing unilateral levies.”

According to the notice, seen by Tax Notes, advertisers will start seeing 2 percent “regulatory operating costs” added to their monthly invoices. “Any taxes, such as sales tax, VAT, [goods and services tax], or [Quebec sales tax], that apply in your country may also apply to the new surcharges,” the notice adds.

The new fees are in addition to similar surcharges for ads in Austria and the United Kingdom, which took effect in November 2020. However, those surcharge rates directly reflect digital tax rates in those countries — a 5 percent digital advertising tax in Austria, and a 2 percent DST in the United Kingdom — and are referred to as “DST fees” on the Google Ads Help site.

The French DST is a 3 percent tax that applies to revenues from online advertising, the sale of data for advertising purposes, and fees derived from linking users to online sales platforms. It covers companies with €750 million in global digital sales and more than €25 million in sales in France. The tax took effect January 1, 2020.

Spain’s 3 percent DST applies to revenues from similar activities and took effect January 16. It applies to companies with annual worldwide sales of at least €750 million and more than €3 million in sales to Spanish customers.

DSTs have drummed up controversy in recent years because of bipartisan U.S. political opposition to the taxes, which are largely viewed as discriminatory against American business interests.

France’s DST became especially controversial after the Office of the U.S. Trade Representative (USTR) under the Trump administration opened an investigation into the tax in July 2019 to determine if it unfairly targeted U.S. companies under section 301 of the Trade Act of 1974.

After concluding that the tax was discriminatory in December 2019, the USTR had recommended that the United States impose extra 25 percent retaliatory tariffs on $1.3 billion worth of French imports starting in January.

However, the USTR later suspended those tariffs pending further actions following the outcomes of its other section 301 investigations into the digital taxes of 10 trading partners. Those investigations, which included Spain, began in June 2020. The USTR published two batches of reports with its findings in the first two weeks of January, with one concluding that the Spanish DST was unfair.

France and Spain had adopted their DSTs while negotiations continued through the OECD framework on a global corporate tax overhaul proposal to address the tax challenges of an increasingly digital economy. Although the nearly 140 countries involved in those talks are aiming for an agreement in July, the project has not stopped many countries, impatient with the pace of negotiations, from pressing ahead with their own digital taxes — nor has it stopped companies like Apple and Amazon from passing on the costs of those taxes to their customers and developers.

Google’s latest announcement comes shortly after Karan Bhatia, the company’s vice president of government affairs and public policy, called on G-20 finance ministers to help “end the headlong rush to discriminatory tax measures . . . and work with the U.S. on a durable agreement.” He also urged countries with DSTs to withdraw or suspend those taxes as negotiations continue.