Russia’s Google Tax Law
Russia recently announced a new rule that would require any foreign brand selling digital content online to register private offices within the Russian borders. Those brands that sell online content to Russians would also have to provide detailed records of their sales and revenue from Russian citizens, as well as pay an additional tax of 18 percent. This value added tax, or VAT, is meant to help restore some of the revenue that has been slipping in the Russian online marketplace.
The VAT will apply to digital services and content from the following categories:
- Free or Paid eBook Access
- Audio/Visual Content
- Music & Images
- Computer Applications
- Digital Games
- Web-Based Marketing Services
- Hosting Services
- Domain Registration Services
Customers who are identified as native Russians via their IP addresses or payment information will indicate where the tax should be levied. The new rules were only put in place last summer, and they have earned the nickname ‘Google Tax Law’ because of the prevalence of Google in the digital content marketplace. This basically means that Google, and several others companies to which the tax applies, will see a decrease in potential revenue from the Russian markets because they will be forced to pay the hefty 18 percent for each transaction. Those brands could potentially counteract that decrease by raising their prices, which would simply create a situation where certain Russian citizens would no longer be able to afford that foreign content.
Despite being nicknamed ‘Google Tax Law’, the rules also applies to Microsoft, Apple, Uber, and Gett, among others. The ultimate goal of the Russian government with these rules is to prevent their digital market from being taken over by foreign interests. By balancing their foreign and domestic providers, it is possible this new rule could produce as much as the Russian equivalent of $160 million per year.
There are certain ways around some of these rules, however. It isn’t legal for Russia to obligate foreign brands to create private offices in Russia, and it is possible for those brands to pay the new tax through Russian partners. This is basically what is going to happen with Uber, since the service they provide is merely an electronic dispatch system. Russian Uber drivers, like all Uber drivers, are independent contractors, so any fee paid to them as a fare from another Russian citizen is not taxed. However, the VAT does apply to the commission that drivers must pay to Uber since the brand is registered in the Netherlands.
The recent growth in the online landscape coupled with the fact that the United States is responsible for a majority of the world’s most popular entertainment options means that laws like these might start cropping up in other countries as well. The law is basically no different than an import tariff meant to incentive the Russian people to use more of their domestic services and content, and if it is successful, other countries might follow suit.