Advertiser tax rates are set to rise, as the industry struggles to get a grip on the costs of growing a successful ad business.
The new regulations, which take effect in 2020, are aimed at making the industry more efficient and better-equipped to compete against digital and mobile advertising.
They are also aimed at ensuring that brands pay the correct amount of tax on the money they spend in the U.S. But many industry observers expect that even if companies comply with the rules, they may not necessarily be able to keep the tax rate high enough to compete effectively with rivals who are less aggressive.
For example, the biggest U.K. online ad giant, B2B ad company Adzuna, is set to pay an average effective rate of around 1.5% to all online publishers.
But some of those publishers, including B2C-based online publisher A1, which operates from its headquarters in London, are already paying a tax rate of up to 6.5%.
“The tax rate in the industry is too low,” said Robert Healy, a digital marketing expert and CEO of Digital Media Research, a company that studies online advertising.
“It’s not a sustainable business model.
The average revenue per user per month is about $30.”
While many online publishers say they will continue to pay their fair share of taxes, some experts say the tax rates may actually be too low, and some may see their revenue as less important than their tax rate.
“The real question is how do we get the tax down to make a case for the company paying the right amount of taxes,” said Scott Greenfield, chief digital officer at eMarketer.
“I’m not saying we should get the same tax rate that every other company is paying, but at least give the revenue a fair shot.”
Advertisers are already under pressure to pay more than their fair market value in taxes, as digital revenues have risen faster than the average American household’s incomes.
But the new tax rules could change that, as many U.N. reports and other data shows that digital revenue is growing faster than incomes, as well as other factors, like the number of people online.
The rules, expected to take effect on Jan. 1, would require online publishers to pay at least 15% of their online revenues in taxes. “If the U