The Google 2% Rule: Everything You Need To Know

The top search engine is to pass a 2% tax fee in November that is set to go in-line with other taxes being implemented across Europe.

What’s the latest?

Google is set to charge businesses who advertise on the platform 2% of their ad spend, to cover their own taxes enforced by the government. This is expected to add over £120 million to annual marketers’ costs. This new costing has been put in place so business costs are more in line with the taxes Google pays themselves, as digital services tax charges have increased to 2% in the UK and a 5% tax rate in Turkey and Austria. These government enforced tax rates are being mirrored in what we’re seeing Google charge consumers, with advertisers in the UK being set to be charged 2%, while Austria and Turkey are being charged 5% tax.

The news comes as governments have introduced new tax laws to digital giants like Google in an attempt to leverage more revenue from the digital industry who as a whole have been paying very little tax comparably to their earnings.

As for other companies following suit, Amazon launched a similar initiative back in August, with 2% tax being passed onto its sellers, and Facebook and Microsoft are expected to release similar statements in the coming months. As for eBay, as it stands they are hoping to absorb the additional 2% tax rates themselves, adding no extra fees for their users.

The news leaves many advertising platforms worried for what these new costs may mean for business advertising online. Many businesses have already been hit by the economic effects of the pandemic, and this is likely to add further cash-flow pressures.

How will the update affect my ads?

For many advertisers using the Google Ads platform this new 2% rule will result in an additional 2% spent on each of their ads, evidently resulting in the need for a higher budget. The alternative for businesses would be to collate the new 2% rule in before they allocate budgets, meaning that there would be less budget for ad copy compared to before this new implementation from Google.

If this is not carefully mentioned in reports, it may seem that your business is getting less of a return on investment. You will know this is not the case, however, and can pinpoint a steady downward trend to the new taxes, but this will need to be communicated to your stakeholders so they are aware of the new costs and budget allocations so you can prepare accordingly.

While the new tax is targeted only at the UK, Turkey and Austria, other countries may also be affected by this new tax rule. For instance, if a business in Canada is targeting users in the UK, any impressions that come from a UK audience will count under the new 2% tax rule, and will be charged accordingly, so this is something global businesses should be aware of for future PPC campaigns.

If you’re unsure on where your ads are showing or which countries you are targeting, be sure to take a look in your Google Ads account. From there you can choose a recent time period and locate your geo-report to see where exactly your ads are being shown. If you are showing for any of these 3 locations mentioned and aren’t wishing to target consumers in those areas, we’d suggest to turn off those locations as it may start to eat up your ad budget quicker than you realise.

What should I do next?

Ultimately, there is not much any of us can do about this new 2% rule, and understandably it comes as negative news to many. However, we are in control of our budget allocations and geo-location settings, so keep this in mind when setting up your next campaign. And remember that it’s not just your business who will have to pick up these extra costs, it’s happening to everyone who advertises using Google Ads, even your competition.

If you need help setting up your ad budget, managing your PPC campaigns or gaining quality conversions through search ads, be sure to contact us at Cadastra. We have an in-house team of highly skilled and experienced PPC experts, so we can design and implement your Pay Per Click campaigns to complement and enhance your digital marketing strategy, without all the jargon. We also work alongside the SEO, social media and CRM teams to achieve optimal results for your business.