Hockey's 'Netflix tax' could make online advertising more expensive

James McGrath
By James McGrath | 10 April 2015

There's speculation this morning that online advertising could be 10% more expensive, if Federal Treasurer Joe Hockey has his way.

Following a meeting with state and territory treasurers yesterday, Hockey said he had in-principle support to start charging GST on “intangible” services such as movie and music downloads.

it is thought that -- while Hockey will take a couple of months to draft any legislation which would bring about the potential GST change -- “intangibles” could extend to online advertising.

"The integrity measures were in relation to what is emerging as an OECD consensus, that GST should be charged at the source, so a company providing intangible services into Australia, such as media services or so on, wherever they are located they should charge GST on those services. So there are some obvious ones of more recent times engaged in that, and without naming companies, I think you can work them out," Hockey said last night.

The talk on tax comes at a time when profit-shifting by multinational tech companies hits the headlines writ large, due to a senate enquiry on the matter.

Communications Minister Malcolm Turnbull previously said charging the likes of Facebook and Google GST on advertising revenue could be the way to go in Australia.

“Changes to international tax treaties take time and are contentious. Another approach which has been canvassed is to impose the GST on advertising booked on these platforms by Australian residents,” Turnbull said.

“At the moment little or no GST is collected in respect of advertising by Australians on international online platforms like Google and Facebook. This can be done unilaterally and would recover very substantial amounts of revenue.”

Google faced a senate enquiry into corporate tax minimisation earlier this week, where it confirmed that its revenue from advertising was run through Singapore to take advantage of a lower corporate tax rate.

“The Netflix tax”

As revealed by AdNews last month, US subscription-video-on-demand player Netflix elected not to collect GST from customers, as it was not obligated to do so under current Australian law.

A representative from Netflix played it cool on whether Netflix now resented having a 10% impost foisted upon it, or whether it would change its subscription model because of potential tax changes.

“Netflix has been and will be compliant with all applicable laws and regulations, and pay taxes as required under local and national law,” they said.

They also remained coy on whether Hockey had raised the issue with the company, after Hockey said he had been in consultation with “a number of those companies”.

Netflix in particular has come under fire, mostly from rival services, for not charging GST, effectively allowing it to undercut its closest competition on its standard definition offering.

It is currently charging customers $8.99 for its basic option, undercutting Fairfax-Nine joint venture Stan by $1 per month.

It was also a point brought up by News Corp CEO Julian Clarke at the senate tax enquiry in Sydney on Wednesday.

While that may seem chump change, it has been said that SVOD is as much a marketing war as a content or pricing war. It is unclear whether Netflix would absorb the cost of an extra 10% impost or pass it onto customers.

The GST, however, could hit a number of media companies in the space, including the likes of Pandora, Spotify, and Apple.

Companies contacted this morning declined to comment.

GST change to hit advertising?

Google faced a senate enquiry into corporate tax minimisation this week, where it confirmed that its revenue from advertising was run through Singapore to take advantage of a lower corporate tax rate.

Media agencies contacted this morning declined to comment, but are thought to be weighing up their position before going public on whether being charged an extra 10% on ad placements would affect their media spends.

Hockey's office refused to rule out whether it would seek to charge GST on advertising as part of the current "intangibles" push, saying that it would not comment while legislation was still being drafted.

Facebook told AdNews this morning that it is reading a 250-page tax policy document issued by Treasury, and could not comment before it had worked out the full implications of any such move.

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