UK to Drive Up iTunes Store Purchases through Tax Hike

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The days of £0.99 music downloads at Apple's U.K. iTunes Store may be coming to an end, and it isn't the iPhone and iPad maker that'll be driving the cost up. Britain's Government is looking to close a tax loophole that lets companies charge VAT rates from other countries -- something Apple and other companies currently do.

UK iTunes purchases may soon cost more because of higher VATUK iTunes purchases may soon cost more because of higher VAT

£0.99 (US$0.69) downloads have been one of the hallmarks of the Apples iTunes stores in the U.K., with millions of songs and apps available at that price. The model has also been followed by other online stores, such as the Google Play store.

However, the British government may have made moves to ending the practice in its Budget last week. The Guardian's political correspondent noted that the Budget document said,

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 services will be taxed in the Member State in which the consumer is located.

Currently products in the Apple store are taxed at the VAT rate of Luxembourg, which are as low as 3 percent. However, if this were to change current rates, this would mean consumers in the UK would pay VAT at 20 percent instead.

The BBC's Technology correspondent Rory Cellan-Jones highlighted the potential shift on Twitter saying, "Death of the 99p download? P78 of Budget signals VAT change which will dismay Apple, Amazon, please the High St." AppleInsider reported that the change could generate "£300 million ($494 million) each year."

Like many elements of the UK Budget, Chancellor George Osborne did not mention this potential change in his hour long speech to the British parliament last week.

There has been a shift to targeting tax loopholes utilised by multinational tech companies in the UK recently, with executives of Google and Amazon being forced to appear in front of powerful parliamentary committees.

This policy announced by Chancellor Osborne is a continuation of that trend, as well as continuing moves to tackle Britain's budget deficit.

[Some image elements courtesy Shutterstock]

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Closing the VAT loophole for Apple, Google, and other companies selling online may help increase money coming into the government, but it won't make consumers happy.

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John Francini

£0.99 does not equal US$0.69; it’s more like $1.63 or so at current rates.

Charlotte Henry

Yes that’s correct. My point, and perhaps it should have been clearer, is that products sold for £0.99 in the UK store are often sold for $0.69 in the US store.

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