From the Guardian:
George Osborne’s latest budget could spell an end to 99p song downloads by closing a tax loophole that meant consumers were paying VAT at very low foreign rates on online purchases of books, music and apps.
The chancellor will bring in new laws making sure that internet downloads are taxed in the country where they are purchased, meaning web firms such as Amazon and Apple will have to charge the UK’s 20% rate of VAT. At the moment they are allowed to sell digital downloads through countries such as Luxembourg, where the tax rate is as low as 3%.
In a little-noticed announcement, Osborne said he would used this year’s finance bill to impose the new law from 1 January 2015.
Kirk McElhearn wrote a clarifying post to bring a little more light on the subject:
Unfortunately, The Guardian chose to simply say “as low as 3%,” rather than to go into detail about the actual VAT rates charged.
So there’s no worry that music or apps will cost 20% more, as some news outlets are claiming. If anything, they may see a 5% increase, but it’s more likely that large companies, such as Amazon and Apple, will just eat the difference for now, to not disturb the round numbers they use as prices.
However, ebooks should soon cost less in the UK. They currently get hit with 20% VAT, and an EU rule is harmonizing VAT rates for print and ebooks in the near future.
But it’s certainly a good thing that these companies will pay VAT in the countries where they make their sales. This is logical, and it should never have been otherwise. Now, if only governments can get these companies to pay income tax on the profits they make in each EU country…
Also this writeup in PC Pro (Via @moltoveloce), but be sure to read McElhearn’s counterpoint in his post.
I’m don’t know where they’re getting that 3% figure from. I believe VAT on UK app sales through Apple is currently paid at 15%, which is the standard rate in Luxembourg. This is set to rise to 17% next year. The UK VAT rate is currently 20%, so unless the requirement would be to pay both UK and Luxembourg VAT, I don’t see this making much of a difference.
So because the charge happens in Luxembourg then customers are charged at Luxembourg’s VAT rate rather than the country they are buying in. I think it’s whether Apple will pass the added charge on to consumers or to the producers of digital goods or take the hit themselves.
It seems the 3% was charged on only some digital items such as ebooks. Source: http://www.ft.com/cms/s/0/3a12541a-94d5-11e3-af71-00144feab7de.html#axzz2wtMlI5qP
it’s not Apple that eats the difference, it’s the content owner! iTunes merely passed on the cost to the artists. Payouts on iTunes have in fact decreased by 10%.