iTunes pricing set to increase in the UK with new Government ruling

iTunes Store

The UK's recent Budget has pushed out – quietly – a new ruling that will surely see iTunes Store prices rise. The rule states that digital content such as apps, music, books and videos will be charged at the rate of tax based on the country it is sold in. Basically pushing it through that iTunes content will be hit with the standard UK rate of VAT at 20%.

Of course it doesn't just apply to iTunes. Google Play, Amazon, any company who sells digital content will be subject to the rules which are set to come into effect on January 1 2015. It's a significant increase on selling through the likes of Luxembourg where tax is just 3%. So any loopholes are being closed. The UK Government will receive a large extra chunk of revenue, but for us regular folks it just means something else we love will cost more money. Disappointing, isn't it? Even if it isn't totally unexpected.

Source: The Guardian

Richard Devine

Senior Editor at iMore, part time racing driver, full time British guy

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iTunes pricing set to increase in the UK with new Government ruling

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"It's a significant increase on selling through the likes of Luxembourg where tax is just 3%."

It's in the article, did you read it?

Right, but that 3% is paid by us, the consumers, not Apple.

In the EU, VAT is collected by the member state in which the transaction is based, not the location of the consumer. This is not a loophole, this is how it is designed to work - the retailer is free to locate their digital business in whatever EU member state they choose. Presumably the motivation for choosing somewhere like Luxembourg with low VAT is that they can keep sale prices down in countries where VAT is high, thus increasing margain without losing business.

I suspect Luxembourg gives companies other incentives too, but either way this is not a loophole.

This applies to all EU countries - sales will be taxed at the rate where the purchaser is located not the seller. So any price increases would be needed in all EU markets.

Also, are we sure the 3% rate in Luxembourg applies to apps? Other forums are suggesting it only applied to ebooks and that apps are already taxed at luxembourg's standard rate of 15%. If so there's only the 5% difference between Luxembourg and UK rates to account for. Apple could cover this difference to keep things priced at a nice round 99p.

For a supposedly right wing conservative government they seem alarmingly keen on staggeringly high levels of taxation. How about they bring VAT down to something more in line with the rest of world, say around 5%. I'm sure they could make up the shortfall by reducing the amount they spend on pointless wars and the EU waste (such as the Common Agricultural Policy and European Development Fund).

According to this page: http://store.apple.com/uk/help/payments

"The VAT rate for Apple customers who purchase Electronic Software Downloads or other Apple products which are classified as services under EU VAT law will be 23% Irish VAT. This is because the place of supply of these products under EU VAT law is Ireland as the country from where Apple Distribution International makes these supplies."

So, good work journos, you're all reporting it wrong - if anything, prices should come down for UK residents (as if, we can dream though).

Amazon on the other hand, does trade digitally out of Luxemburg.

Nice find. So the question now then is, how will Luxembourg feel about losing its commission on digital sales to the UK government? Presumably the rest of the EU will have to be onboard with this?

Not really sure on that one but as VAT is set individually in all EU countries I would guess that the enforcement of those rates are individual as well, Luxemburg could hardly argue that they have the right to claim the VAT on sales made in the UK. With just a few big companies (Apple, Google, Amazon, Microsoft, etc.) having the monopoly on digital downloads it will make the taxman's job a little easier chasing it up :-)