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Big Tech raise advertiser, developer fees in response to digital taxes in Europe

Several European countries the UK, France, Italy and others as well as Turkey, have in the recent past begun taxing technology companies, including the giants, with digital services taxes. Talks for developing a global framework for digital taxes fell apart after the US pulled out of negotiations earlier this year, stating that the levies discriminate against American firms and are unfair. European countries went ahead with bringing their proposed taxes into effect.

However, American companies have announced that they will pass on the additional tax burden onto their customers. This goes against the intention, since the taxes were aimed to net in revenues from giant foreign tech firms. The UK has a high threshold for taxing digital services, it’s 2% levy applies to firms that have over £500 million in annual revenue, of which £25 million is taxable in the UK.

Giants have begun passing on tax to customers

Apple on Tuesday said developers will soon be charged increased levies on their revenues. In the UK, a developer will now pay an additional 2% on their revenue over and above the 20% VAT that’s already applicable. Similarly, developers in Italy and France will pay another 3% over existing VATs. The remaining revenue will be split between Apple and the developer. Despite being aimed at capturing revenue from technology firms, the burden is being passed on to app makers. In addition, prices of apps and in-app purchases will increase by 7.5% the digital tax rate Turkey is charging.

France and Italy already have had a similar framework in place. In fact, France’s 3% DST was a placeholder since OECD negotiations were expected to result in a global framework. The UK’s 2% digital service tax applies to “social media, search engine, or online marketplace” services for UK users.

Google is doing the same: Starting November 1, it will begin charging new levies on advertising in the UK, Austria, and Turkey. 2% will be added in the UK, 5% Turkey Regulatory Operating Costs, and a 5% digital service tax in Austria.

Amazon even announced this last month: Nearly a month ago, on August 4, Amazon said it would no longer absorb digital tax services since discussions with the UK government had ended and the tax has actually come into effect. “Now that the legislation has passed, we want to inform you that we will be increasing Referral fees, Fulfilment by Amazon (FBA) fees, monthly FBA storage fees and Multichannel Fulfilment (MCF) fees by 2% in the UK to reflect this additional cost,” Amazon said. The tax became applicable for Amazon sellers starting September 1. It’s worth noting that this practice has not just begun. For instance, Amazon passed on the France digital service tax, which came into effect in 2019, to customers by simply increased commission rates on businesses selling on Amazon France by 3%.

As of June 22, Austria, France, Hungary, Italy, Poland, Turkey, and the United Kingdom had implemented a DST, per Tax Foundation. The scope of activities that falls within the tax net vary by country. Facebook also passed on a 6% digital tax in Malaysia starting January 2020.

Although the levies are aimed the foreign technology firms and may even result in increased tax collections from digital economy, they may end up hurting domestic businesses in the countries. The levies will especially hit merchants and developers, say an Amazon seller with a low profit margin, the hardest.

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