• kelly-sikkema-M98NRBuzbpc-unsplash

The Online Advertising Tax

An Essay by Christian Fuchs, published by MeCCSA: Three-D

In the age of austerity, there has been increased public criticism of large transnational corporations’ low tax contributions. Google and Facebook dominate the online advertising market in the form of a duopoly and avoid paying adequate taxes while complying with the taxation system in place. This policy brief introduces a new possibility and policy innovation for taxing online advertising.

Google and Facebook are among the world’s largest transnational corporations. In Forbes’ 2017 ranking of the 2,000 biggest global companies, Google/Alphabet came 24th with an annual profit of US$19.5 billion.1 With a profit of US$9.5 billion, Facebook was in 119th place.2 Neither company sells communication services. They are the world’s two largest advertising corporations.

There is an overall shift of advertising revenue from print towards digital. In this context, Google and Facebook now control about two-thirds of global advertising revenue: Google is estimated to have controlled 55.2% of global advertising revenue in 2016, and Facebook 12.3%.3 Given their tax avoidance strategies, their online advertisin duopoly and their economic importance, such companies contribute to the trend that transnational corporations hardly pay taxes. This trend has been recognised as a severe problem, but no solution has yet been found. The question is how to properly tax digital and online corporations.

How Can Online Advertising Be Taxed?

Any levy on online advertising introduced in law will be difficult to collect if the law’s wording states that the tax must be paid in the country of the advertising company’s main office. The examples of Google and Facebook show that transnational companies operate in many countries at the same time, which means tax jurisdiction is not clearly defined. By contrast, if we argue that the users to whom personalised advertisements are presented (cost-per-view) or who click on such an ad (cost-per-click) create the value of the online advertisement and that online advertising should be taxed in the country where the targeted user is located, the territorial allocation becomes much easier. This model assumes that specific national tax legislation applies if you, as a user, are in this country and click on an online advertisement. If you happen to be in Germany, then German tax law applies. The key location is that of the user where the service is performed and data and content are created. That is where taxation should take place.

Profit is usually taxed in the location where a commodity’s value is produced, while value-added tax regulations usually focus on the target country where the commodity is sold. The Internet’s global nature renders the application of traditional tax legislation difficult, as an Internet company is able to sell digital commodities in countries where it has no physical or legal presence. In the case of Facebook and Google, we have three actors: the Internet platform, the users, and the advertisers. These three actors may be located in three different countries. In the case of online advertising, the consumers of the platform services are also the producers of content, data, metadata and the attention that make online advertising possible in the first place. Accordingly, they are prosumers – producing consumers. Where prosumption platforms (including Google and Facebook) are concerned, the users’ important role in profit generation and value creation could be taken into account by taxing online profits and online advertising in the country where the user clicking upon or looking at an advertisement is located. The location of users who click on and view ads can be determined via IP addresses. When visiting an Internet platform, it is standard procedure for the IP address to be retrieved and usually stored for each access. This enables advertising to be personalised according to countries and places.

This model could be implemented in such a way that, in the UK (or elsewhere), companies such as Google or Facebook would be required to statistically analyse what proportion of payment-generating advertising clicks or impressions were executed there, in whichever country is charging the online advertising tax. The corresponding national share of the global profit, global value creation and global turnover per year could then be used as the financial basis for calculating the payable annual online advertising tax. Another option would be to calculate profit, value creation and turnover according to the country’s share of global active users as the financial basis for taxation; however, this would produce only a rough estimate.

The model visually represented in Figure 1 presents an online advertising tax with a hypothetical 20% tax rate on advertising turnover. The fictitious company Käsebier (Cheesebeer) Schweiz is using Facebook and Google to display personalised advertisements on the profiles of beer drinkers in the UK and Germany. The image shows four concrete personalisations, of which two respectively address users in Germany and the UK. The UK tax authority (HMRC) only taxes the advertisements targeting users in Britain and leaves all other online advertisements aside. For both advertisements, an online advertising tax of 90 cents in total is payable, corresponding to 20% of the cost of the advertisements. The model shows the sum being used to finance public service Internet platforms operated by a department of the BBC.

Figure 1: Model of online advertising tax coupled with funding for public service Internet platforms

Supporting Alternative, Non-Profit Internet Platforms

The revenue achieved from an online advertising tax could be a source for funding an alternative Internet. Such an Internet can be advanced in two ways: by public service media (PSM) organisations and via civil society. A public service Internet can be created by a network of public service media corporations that implement and offer non-commercial, non-profit, advertising-free platforms that act as alternative to established commercial channels such as YouTube. Instead of YouTube, we need a BBCTube that offers not only the possibility of user-generated content but also BBC archive material with the help a of Creative Commons licence so that users can remix it in order to create new digital content on the platform. Another idea is the revival of After Dark (originally created as Club 2 by the Austrian Broadcasting Corporation ORF) as hybrid TV show/online platform Club 2.0 that features live, open-ended studio debate with certain levels of user-participation via social media.

A participatory media fee could be introduced as a kind of citizen income funded through taxing corporations and advertising. The state taxes corporations and then distributes the resulting income through this means of participatory budgeting to all citizens, who are enabled to donate and support civil society media and cultural organisations through this public sphere cheque. As a result, civil society media and civil society Internet platforms (also called platform co-operatives) could thrive.

The public service Internet and the civil society Internet are complementary and should not seen as an either/or option and as competing with each other. Both constitute important alternatives to the corporate Internet.


1 http://www.forbes.com/global2000, last accessed 9 February 2018.

2 http://www.forbes.com/global2000, last accessed 9 February 2018.

3 https://www.emarketer.com/Article/Google-Still-Dominates-World-Search-Ad-Market/1014258



Photo by Kelly Sikkema on Unsplash

Christian Fuchs


Christian Fuchs is Professor at, and the Director of, the Communication and Media Research Institute. He is also Director of the Westminster Institute for Advanced Studies.

His fields of expertise are critical digital & social media studies, Internet & society, political economy of media and communication, information society theory, social theory and critical theory.


2 January 2019
Published By
MeCCSA: Three-D
Share this article
CAMRI | The Online Advertising Tax - CAMRI
class="pirenko_portfolios-template-default single single-pirenko_portfolios postid-2549 samba_theme samba_left_nav samba_left_align samba_responsive thvers_85 wpb-js-composer js-comp-ver-6.5.0 vc_responsive"