Apple to instate country-specific app taxes in EU starting Jan. 1

Posted:
in iPhone edited June 2015
In an email sent out to iTunes Connect members on Wednesday, Apple reminded developers of an upcoming value-added tax (VAT) rate policy change that will see customers pay fees based on their country of residence rather than other EU locales with lower taxes.




As seen in Apple's email, provided by AppleInsider reader Gregg, VAT rates for apps are slated to change in all European Union territories starting Jan. 1, 2015, with the new policy potentially upping prices for customers living in high tax countries like the UK. App Store customers are currently charged a flat VAT across the EU.

The move comes after British Chancellor of the Exchequer and Second Lord of the Treasury George Osborne announced new laws in March targeting tax loopholes that allowed Apple to sell app downloads via low-VAT countries. For example, UK App Store customers are currently able to bypass a 20 percent VAT through Apple's routing of purchases through countries like Luxembourg, which has a 3 percent tax rate.

From a UK budget document released at the time:

"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. 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."

It is unclear if Apple intends to apply the new tax rule to all iTunes purchases, including music, movies and e-books, though UK budget laws set for enactment cover all digital downloads.

Apple's note also points out that while App Store prices will change to reflect appropriate VAT rates, developer proceeds are to remain constant as they are calculated without tax.
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Comments

  • Reply 1 of 51
    akacakac Posts: 512member
    Based on my reading of this and the chart, unless the EU prices get raised this means developers will be on the losing end of this change. I understand why this is happening and the countries should get their tax amount - but I do think Apple needs to make an adjustment for it as well.

    [IMG]http://forums.appleinsider.com/content/type/61/id/53440/width/200/height/400[/IMG]
  • Reply 2 of 51
    mpantonempantone Posts: 1,651member

    Well, both Apple and the developer get less because they are paid out from post-tax earnings.

     

    It's really up to the developer to decide whether or not to increase Euro pricing to compensate for the loss of the low-VAT loophole, not Apple. 

     

    Let's say it's a 10 euro app, but the VAT is 20% in Country A. That means 2 goes to the Government A, with Apple and the developer splitting the remaining 8 percentage-wise 30-70, resulting in €2,40 to Apple and €5,60 to the app developer.

     

    That same €10 app would result in greater developer revenue where the VAT is lower (Country B), less revenue where the VAT is higher (Country C). At the end of the day, the developer has to analyze whether or not the number of copies sold (Countries A, B, C, D, E...) is resulting in enough revenue per copy. If not, the price needs to go higher.

     

    Remember, nothing is forcing the developer to charge anything at all: free apps still remain free and no VAT is assessed.

  • Reply 3 of 51
    akacakac Posts: 512member
    mpantone wrote: »
    Well, both Apple and the developer get less because they are paid out from post-tax earnings.

    It's really up to the developer to decide whether or not to increase Euro pricing to compensate for the loss of the low-VAT loophole, not Apple. 

    <span style="line-height:1.4em;">Let's say it's a</span>
    <span style="line-height:1.4em;">10 euro app, but the VAT is 20% in Country A. That means</span>
    <span style="line-height:1.4em;">2 goes to the Government A, with Apple and the developer splitting the remaining</span>
    <span style="line-height:1.4em;">8 percentage-wise 30-70, resulting in €2,40 to Apple and </span>
    €5,60 to the app developer.

    That same €10 app would result in greater developer revenue where the VAT is lower (Country B), less revenue where the VAT is higher (Country C). At the end of the day, the developer has to analyze whether or not the number of copies sold (Countries A, B, C, D, E...) is resulting in enough revenue per copy. If not, the price needs to go higher.

    <span style="line-height:1.4em;">Remember, nothing is forcing the developer to charge anything at all: free apps still remain free and no VAT is assessed.</span>
    Eh no. Apple lets us set ONE price. A tier. So a USD 10 app is tier 10. Tier 10 has specific prices for each country. So no we developers do not get to raise our EU prices.

    So yes it is up to Apple to raise the euro price tier based on the country.

    To be clear, I've been dealing with taxes and accounting for a global business since 2000. I'm aware of how VAT works and how economy of scale and all that fun stuff works. The point that your response misses is my response above - we developers don't set per country pricing. We set one tier. Apple sets the country pricing. As a result this means less to the developer.
  • Reply 4 of 51
    The article summary is wrong as the first two commenters posted. The government is going to eat everyone's lunch on this one.
  • Reply 5 of 51
    akac wrote: »
    mpantone wrote: »
    Well, both Apple and the developer get less because they are paid out from post-tax earnings.

    It's really up to the developer to decide whether or not to increase Euro pricing to compensate for the loss of the low-VAT loophole, not Apple. 

    <span style="line-height:1.4em;">Let's say it's a</span>
    <span style="line-height:1.4em;">10 euro app, but the VAT is 20% in Country A. That means</span>
    <span style="line-height:1.4em;">2 goes to the Government A, with Apple and the developer splitting the remaining</span>
    <span style="line-height:1.4em;">8 percentage-wise 30-70, resulting in €2,40 to Apple and </span>
    €5,60 to the app developer.

    That same €10 app would result in greater developer revenue where the VAT is lower (Country B), less revenue where the VAT is higher (Country C). At the end of the day, the developer has to analyze whether or not the number of copies sold (Countries A, B, C, D, E...) is resulting in enough revenue per copy. If not, the price needs to go higher.

    <span style="line-height:1.4em;">Remember, nothing is forcing the developer to charge anything at all: free apps still remain free and no VAT is assessed.</span>
    Eh no. Apple lets us set ONE price. A tier. So a USD 10 app is tier 10. Tier 10 has specific prices for each country. So no we developers do not get to raise our EU prices.

    So yes it is up to Apple to raise the euro price tier based on the country.
    I think the point was you can change your tier.
  • Reply 6 of 51
    akacakac Posts: 512member
    That's not reasonable. That punishes all non-EU customers for EU pricing. And also that's not what he said. He said that we could raise our EU prices to accommodate, and so I'm clarifying you can't. It seems strange to think its a good idea to globally raise prices in response to per country taxes.
  • Reply 7 of 51
    mpantonempantone Posts: 1,651member
    Quote:

    Originally Posted by Phone-UI-Guy View Post



    I think the point was you can change your tier.



    Yes, that is the point. 

     

    Change to a different tier, make a different amount of revenue. Is it enough for you? 

     

    Plus, the dollar has strengthened this past year vis-a-vis many other currencies, but especially the Euro and GB pound sterling. It's up to the developer to periodically review all these various elements as nothing stays static. Even if you are happy what you are making today, it might not be the case six months from now.

     

    Again, it is up to the individual app developer to make those tactical pricing decisions, not Apple.

     

    Or, if you don't like Apple's policies, go rogue and sell your apps to the iOS jailbreak crowd or Android users.

  • Reply 8 of 51
    richlrichl Posts: 2,213member
    I'm sure that iTunes Connect will just show tier prices for Europe excluding VAT and then each country's store will do the math to show consumers the price inclusive of VAT.

    Shouldn't make a big deal to UK consumers. We already get boned on the alternative tier 1 pricing structure.
  • Reply 9 of 51
    Sounds fair to me. Taxes should be paid based on where the transaction took place. Whether an app or corporate taxes.
  • Reply 10 of 51
    Apple's note also points out that while App Store prices will change to reflect appropriate VAT rates, developer proceeds are to remain constant as they are calculated without tax.

    I don't see where this affects the developers' revenue. The way that I read it, the VAT is added on after the sale price is set by the developer, so the developer is making the same money no matter where the app is sold. The final price to the consumer - the price listed in the App Store - changes from country to country to reflect different VAT rates. This seems similar (but not identical) to sales tax in the states. Different states charge different sales tax rates, but the product is sold for the same price in different states. The difference is only more noticeable with VAT because it is incorporated into the listed price, where sales tax is added on to the listed price.

    In other words, if a person had a $5.00 app that they made $1.50 every time it sold, they still make $1.50, but the app will be listed in the App Store for $5.25 or $6.00 or anywhere in between depending on the local VAT rate.

    The only ones impacted are the consumers living in countries with high VAT rates, but that's between them and their elected officials.
  • Reply 11 of 51
    NO, VAT work in another way. If you are a professional developers, that did all the needed paperwork,
    you actually get the VAT money back when you buy stuff or spend money for your professional activity.
    The mechanism is very complex, and depends on EU rules and local rules, but essentially the VAT is indirectly paid only by the final buyer.

    The point is more than independent developers, like myself, with a low revenue level (part time, etc), often work within some special legal framework that simplify their paper work, but in which you do not get your TVA money back. At least where i leave i have the choice: i can switch the VAT switch on, do all the paper work and get the money back; the problem is that often the paper work is complex and time consuming, so you probably need an accountant consultant; so, it is worth only if you have some money going around.
  • Reply 12 of 51
    This post is incorrect on one point. The current EU ( = Apple Luxembourg) tax rate for apps is 15%, not 3%. Moreover, as of Jan 1 2015 Luxembourg raises this taxrate to 17% for its inhabitants. So tax rates for apps are up all over Europe.
  • Reply 13 of 51
    asdasdasdasd Posts: 5,681member
    Apple should try and phase out the cheap tier over time. The race to the bottom is not a good thing.
  • Reply 14 of 51
    Selling in the Mac App Store is becoming more and more of a pain for developers, and this is why we've seen so many abandon them to sell directly via their own websites. App prices have already been forced to drop due to the App Store economy, and now with this, it's going to affect developers' bottom line even further.

    Obviously iOS developers have nowhere else to go, but it'll be interesting to see how Mac devs react to this.
  • Reply 15 of 51
    asdasdasdasd Posts: 5,681member
    Quote:
    Originally Posted by RichL View Post



    I'm sure that iTunes Connect will just show tier prices for Europe excluding VAT and then each country's store will do the math to show consumers the price inclusive of VAT.



    Shouldn't make a big deal to UK consumers. We already get boned on the alternative tier 1 pricing structure.

     

    Quote:
    Originally Posted by bappo View Post



    NO, VAT work in another way. If you are a professional developers, that did all the needed paperwork,

    you actually get the VAT money back when you buy stuff or spend money for your professional activity.

    The mechanism is very complex, and depends on EU rules and local rules, but essentially the VAT is indirectly paid only by the final buyer.



    The point is more than independent developers, like myself, with a low revenue level (part time, etc), often work within some special legal framework that simplify their paper work, but in which you do not get your TVA money back. At least where i leave i have the choice: i can switch the VAT switch on, do all the paper work and get the money back; the problem is that often the paper work is complex and time consuming, so you probably need an accountant consultant; so, it is worth only if you have some money going around.



    That's really nothing to do with this. This is Apple subsuming the new VAT changes from 2015, where people are charged where they are not where the digital service is ( thus the luxembourg VAT advantage is gone),  which will reduce the money they make and therefore the 70% passed onto devs. 

     

    Apple could have done a few things differently.

     

    1) Keep the prices pre-VAT the same but add on VAT in the sales.

    2) subsume the VAT prices but reduce their take.

     

    In this case they are reducing their take and the developers take. 

     

    Google are doing nothing as far as I can see and are putting it on the dev.

     

    EDIT:

     

    Not really.They are doing it the same way:

     

    https://support.google.com/googleplay/android-developer/answer/138000?hl=en

  • Reply 16 of 51
    asdasdasdasd Posts: 5,681member
    Quote:
    Originally Posted by charlituna View Post



    Sounds fair to me. Taxes should be paid based on where the transaction took place. Whether an app or corporate taxes.



    Well the term "the transaction took place" is a grey grey area, however in general sales taxes should take place where the customer is, yes. 

  • Reply 17 of 51
    asdasdasdasd Posts: 5,681member
    Quote:

    Originally Posted by Akac View Post





    Eh no. Apple lets us set ONE price. A tier. So a USD 10 app is tier 10. Tier 10 has specific prices for each country. So no we developers do not get to raise our EU prices.



    So yes it is up to Apple to raise the euro price tier based on the country.



    To be clear, I've been dealing with taxes and accounting for a global business since 2000. I'm aware of how VAT works and how economy of scale and all that fun stuff works. The point that your response misses is my response above - we developers don't set per country pricing. We set one tier. Apple sets the country pricing. As a result this means less to the developer.



    Sure, but thats going to be the case for many B2C transactions from now on.

     

    The whole thing, while necessary, is a big problem for small companies. 

  • Reply 18 of 51
    asdasd wrote: »

    Well the term "the transaction took place" is a grey grey area, however in general sales taxes should take place where the customer is, yes. 

    Let's get real. There should be a sales tax of exactly zero since the location is the Internet and the burden on local resources is minimal at best (a fraction of the local currency for electricity, which is already paid for). Taxes on files delivered electronically should always be zero and these laws are simple extortion of businesses and customers.

    My recommendation to EU customers? Buy everything you need now and buy nothing next year.
  • Reply 19 of 51
    elijahgelijahg Posts: 2,550member
    The EU originally stated that a company should operate from one country in the EU (of which companies chose the tax havens Ireland and Luxembourg) and then charge VAT set by the country they are based in, not the where the customer resides. When companies started avoiding paying heaps of tax using this EU-sanctioned method, politicians got annoyed, so the EU and the same politicians started trying to blame the companies for using the EU-sanctioned VAT system/loophole. They claimed the companies should "have the morals to pay tax in the country they operate in", ultimately ending up voluntarily paying much more tax.

    Why would any company voluntarily pay more than required, when it's in the interests of the company to pay as little tax as possible? If they paid more tax than necessary, the shareholders wouldn't be too happy for sure.

    Another example of the horribly over-bureaucratic EU not understanding nor abiding by its own laws.
  • Reply 20 of 51
    elijahg wrote: »
    The EU originally stated that a company should operate from one country in the EU (of which companies chose the tax havens Ireland and Luxembourg) and then charge VAT set by the country they are based in, not the where the customer resides. When companies started avoiding paying heaps of tax using this EU-sanctioned method, politicians got annoyed, so the EU and the same politicians started trying to blame the companies for using the EU-sanctioned VAT system/loophole. They claimed the companies should "have the morals to pay tax in the country they operate in", ultimately ending up voluntarily paying much more tax.

    Why would any company voluntarily pay more than required, when it's in the interests of the company to pay as little tax as possible? If they paid more tax than necessary, the shareholders wouldn't be too happy for sure.

    Another example of the horribly over-bureaucratic EU not understanding nor abiding by its own laws.

    By any measure, the EU is an utter failure. Germany should be the first to flee that sinking ship.
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