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United Kingdom sales tax law changes could alter price of apps, music

updated 08:47 am EDT, Mon March 24, 2014

Price of digital content could rise, fall in UK from 2015

A change in the way taxes are applied to purchases in the United Kingdom could cause some digital items to rise in price, according to a report. The country's recent budget announcement by chancellor George Osborne included a statement that would force online sales to use the UK's rate of sales tax (Value Added Tax, or VAT) instead of a far lower rate used elsewhere in Europe.

Spotted by the Guardian, the budget states "the government will legislate to change the rules for the taxation of intra-EU businesses 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."

UK Chancellor of the Exchequer, George Osborne
UK Chancellor of the Exchequer, George Osborne


Current rules allow for companies to include a sales tax charge based on where it is sold from, rather than the customer's location. A number of companies have taken advantage of this, bringing the tax down to as low as 3 percent, depending on the country. It is estimated that the closure of this loophole will raise £300 million ($495 million) in tax revenues for the UK, though the extra associated cost will most likely be passed onto consumers, raising the price of digital goods.

While price rises are a potential issue, in some cases it is possible for consumers to save money with the tax changes. According to Apple's support documents, it currently charges 23 percent in VAT for "Electronic Software Downloads or other Apple products which are classified as services under EU VAT law," as Apple Distribution International is based in Ireland. This does not apply to iTunes however, as it operates in Luxembourg, a country with a lower rate of VAT.



By Electronista Staff
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