British consumers face iTunes price hike after tax policy change
Apple may be forced to increase the amount of Value Added Tax that it charges for iTunes music and video sales in the U.K. as Her Majesty's Treasury pushes to end tax loopholes that allow consumers to pay much lower rates on digital purchases.
The new law, backed by Chancellor of the Exchequer and Second Lord of the Treasury of the United Kingdom George Osborne, would end a policy that allows Apple to sell downloads through EU countries like Luxembourg with VAT rates as low as 3 percent. Instead, Apple would have to levy the U.K.'s full 20 percent VAT for purchases in Britain, according to The Guardian.
"As announced at budget 2013, the government will legislate to change the rules for the taxation of intra-EU business to consumer supplies of telecommunications, broadcasting and e-services," an announcement from the Treasury reads. "From 1 January 2015 these services will be taxed in the member state in which the consumer is located, ensuring these are taxed fairly and helping to protect revenue."
The change is said to have the potential to raise government income from taxes on digital sales by as much as ?300 million ($494 million) each year.
The new law, backed by Chancellor of the Exchequer and Second Lord of the Treasury of the United Kingdom George Osborne, would end a policy that allows Apple to sell downloads through EU countries like Luxembourg with VAT rates as low as 3 percent. Instead, Apple would have to levy the U.K.'s full 20 percent VAT for purchases in Britain, according to The Guardian.
"As announced at budget 2013, the government will legislate to change the rules for the taxation of intra-EU business to consumer supplies of telecommunications, broadcasting and e-services," an announcement from the Treasury reads. "From 1 January 2015 these services will be taxed in the member state in which the consumer is located, ensuring these are taxed fairly and helping to protect revenue."
The change is said to have the potential to raise government income from taxes on digital sales by as much as ?300 million ($494 million) each year.
Comments
It would of course also be fair when doing this to remove the VAT on eBooks. Currently they have VAT on them whereas printed books don't.
You gotta love British titles. "Chancellor of the Exchequer and Second Lord of the Treasury of the United Kingdom"!
One look at the title and you're compelled to do whatever he says!
Now UK will have a big problem to apply this I would think.
This article doesn't make sense.
If us Brits are going to be charged the UK VAT rate of 20%, purchases will be 3% cheaper.
Currently digital downloads from Apple originate in Ireland and are charged at the higher Irish VAT rate of 23% (throughout the whole of Europe).
AFAIK, Apple could charge the Luxembourg low digital VAT rate (after all iTunes SARL is based there) but they choose to appease the Irish taxman (who lets them off a hell of a lot of taxes in Ireland).
To the best of my knowledge Google and MS charge the VAT rate applicable in the country where the customer is though, so I doubt this will affect their customers full stop.
Amazon customers will no longer be paying the lower (6% eBook) VAT rate but I guess that Amazon was just pocketing the difference anyway and may decide to swallow the increase by not raising prices.
Personally I see this as a potentially positive move that will help to level the playing field for those firms that choose not to play tax shenanigans.
Edit-- from the Apple site
~"The VAT rate for Electronic Software Downloads or other Apple products classified as services under EU VAT law will be 23% as VAT is charged at the rate payable in the country where Apple Distribution International supplies such products, which is the Republic of Ireland"
It would of course also be fair when doing this to remove the VAT on eBooks. Currently they have VAT on them whereas printed books don't.
The laws are somewhat asymmetric. Why pay VAT on an eBook when the original was 0% VAT rated?
Bizarrely you have to pay VAT on printing catalogues, I guess that the argument is that they are promotional products but you don't pay VAT for flyers (considered to be one off promotional products) or newspapers which increasingly seem to be half full of adverts.
Amazon will raise prices and whine about Apple causing it on their website, just like they did with eBooks.
Amazon will raise prices and whine about Apple causing it on their website, just like they did with eBooks.
I don't think that will raise their prices. They would have known that the writing was on the wall and may have seen the tax differential as being a short term gain.
Prices are pegged against their competitors. Those competitors that are UK based and playing the game fairly would be in a stronger position if Amazon hike their prices up.
Absolutely!!
If you live in the UK you will know that the current British Government has done an immense amount of damage in the short term it has been in office. Selling off national asserts to connected friends at discount prices who make millions overnight. Selling off of our school buildings at low prices to connected friends (with offshore accounts) then renting them back at a higher rate, all legal fees paid by the tax payer. Selling off of the NHS anything that could potentially be profitable and leaving the costly services to the tax payer. The country is in an absolute mess.
As well as an increase of five thousand pounds to the taxable allowance, record employment and falling unemployment, growth is also the highest it's been since the Labour Party left us bankrupt.
This move equates to a three percent cut in the UK as we currently pay the Irish sales tax rate of 20%
Along with tax cuts for the arts, alcohol and petrol, it all serves to make us a little better off.
This article doesn't make sense.
If us Brits are going to be charged the UK VAT rate of 20%, purchases will be 3% cheaper.
Currently digital downloads from Apple originate in Ireland and are charged at the higher Irish VAT rate of 23% (throughout the whole of Europe).
...Edit-- from the Apple site
~"The VAT rate for Electronic Software Downloads or other Apple products classified as services under EU VAT law will be 23% as VAT is charged at the rate payable in the country where Apple Distribution International supplies such products, which is the Republic of Ireland"
I just checked the Apple site and you are correct.
The question now is: Is Apple forced by European low to manage it that way or was Apple massaging the whole process to let us customers pay for Apple's tax cuts in Ireland?
Glad to see the government closing tax loopholes and levelling the playing field for UK-based companies.
Most quotes about Ireland lie. They are a convenience country with the goods being of 'no abode whatsoever'.
Apple seldom participate in contributing taxes when they can avoid it 100%
Who is the most evil, them or Google I'm unsure. A backdating law on tax for the big bad two would be quite a windfall.
And gambling.
The article accuses Apple of using the Luxembourg loophole but it doesn't - Amazon do.
There is a far more serious issue here though. How is the tax collected? Do companies outside the UK make quarterly submissions to the UK treasury? What if all European countries followed through? Would companies with websites have to make 27 VAT returns per quarter?
The only way to really fix this is to make all electronic goods taxable at the same rate.
You are now blaming Apple for paying more tax? When UK companies sell to Ireland the vat is 20%.
iTunes downloads wouldn't be classified as services. This statement would refer to things like their financial services where VAT is charged on the repayments and controlled in part by Apple Distribution International in Ireland; not AppleCare though:
http://store.apple.com/uk-business/browse/campaigns/macleasing
If iTunes supplied from Ireland, the receipts would say Ireland instead of Luxembourg. It's not a 3% VAT rate in Luxembourg for music though, it's 15% for music, 3% for ebooks. Amazon uses the same setup:
"Sales of digital products and services including Kindle content, Amazon Apps, Software & Digital Games (including prepaid gaming cards), MP3 downloads, Cloud Player, and Cloud Drive are shown inclusive of Luxembourg VAT rates of 15% (3% for e-books). For customers based in Iceland, Norway or Switzerland, Amazon will charge local VAT in line with local VAT legislation."
https://www.amazon.co.uk/gp/help/customer/display.html?nodeId=502578
The reason to use Luxembourg is:
"Luxembourg has just half a million residents. But when customers across Europe, Africa or the Middle East — and potentially elsewhere — download a song, television show or app, the sale is recorded in this small country, according to current and former executives. In 2011, iTunes S.à r.l.’s revenue exceeded $1 billion, according to an Apple executive, representing roughly 20 percent of iTunes’s worldwide sales.
The advantages of Luxembourg are simple, say Apple executives. The country has promised to tax the payments collected by Apple and numerous other tech corporations at low rates if they route transactions through Luxembourg. Taxes that would have otherwise gone to the governments of Britain, France, the United States and dozens of other nations go to Luxembourg instead, at discounted rates.
“We set up in Luxembourg because of the favorable taxes,” said Robert Hatta, who helped oversee Apple’s iTunes retail marketing and sales for European markets until 2007. “Downloads are different from tractors or steel because there’s nothing you can touch, so it doesn’t matter if your computer is in France or England. If you’re buying from Luxembourg, it’s a relationship with Luxembourg.”"
http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-aims-at-low-tax-states-and-nations.html?pagewanted=3&_r=0
It's not clear if the agreement is over the VAT rate or the income tax rate or both but this doesn't have to affect the prices of the songs because VAT is already assumed to be included. If songs are priced at 0.99 euros and there's 1m euros worth of sales, with Luxembourg taxes, the assumption is that this 1m euros represents ex-tax revenue x 1.15 so ex-tax revenue would be 870k euros. With UK taxes, ex-tax revenue would be 833k euros. Apple's cut would be 261k and 250k respectively, a pretty small drop.
If Apple wanted to maintain their revenue, they can increase their 30% cut of ex-tax revenue (to say 32%) or just take a small amount less money. Apple already charges more for songs in the UK anyway. They are sold at £0.99 so if you deduct 15%, you get £0.86 = $1.42. I'm sure Apple can absorb the difference in tax and maintain £0.99. They still have to be competitive with Amazon and they'll face the same changes.
Amazon will raise prices and whine about Apple causing it on their website, just like they did with eBooks.
Does it matter that it is true?
You gotta love British titles. "Chancellor of the Exchequer and Second Lord of the Treasury of the United Kingdom"!
One look at the title and you're compelled to do whatever he says!
As someone who lives in the UK, I wasn't even aware he was the Second Lord of the Treasury (or, for that matter, who the First Lord even is)...