Apple’s U.K. Customers May See iTunes Prices Increase Next Year

Source: http://www.flickr.com/photos/garryknight/

Source: http://www.flickr.com/photos/garryknight/

Apple’s (NASDAQ:AAPL) iTunes and App Store customers in the U.K. will likely be paying a little bit more for their digital downloads next year. George Osborne, chancellor of the U.K., recently introduced new laws that are designed to make sure that online downloads are taxed in the country where they are purchased, reports The Guardian. The new laws will make companies that sell digital downloads liable for the U.K.’s value added tax (VAT) of 20 percent.

Online retailers such as Apple and Amazon (NASDAQ:AMZN) had been avoiding the U.K.’s VAT on digital downloads by directing sales through low-tax countries such as Luxembourg. As noted by The Guardian, Luxembourg’s tax rate can run as low as 3 percent. However, Osborne proposed closing this tax loophole in the government’s new budget.

“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,” stated the chancellor in the budget document obtained by The Guardian. “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.”

The government estimated that the new laws could add 300 million pounds to the Treasury. Brick-and-mortar retailers alleged that the lack of a VAT on digital sales gave online retailers an unfair advantage, and they have been pushing the U.K. to make the rule changes. According to Greenwich Consulting research cited by The Guardian, the U.K. was missing over 1.6 billion pounds in tax revenues a year by not charging a VAT on digital downloads.

Although it is not known if Apple will raise the prices of its apps and other digital products, it is widely expected that the new VAT cost will be passed on to consumers. This recent rule change may also herald further changes to come. According to The Guardian, Osborne has promised to crack down on “corporation tax avoidance.”

This is not the first time that Apple’s tax practices have come under scrutiny in Europe. According to l’Espresso, Apple was investigated by Italian authorities last year over allegations that it illegally avoiding paying taxes by transferring profits it made in Italy to its Apple Sales International subsidiary in Ireland. Apple has long taken advantage of Ireland’s unique territorial tax system that allows the iPhone maker to pay very little to no tax on the income it diverts to subsidiaries in that country. According to the Telegraph, Ireland recently implemented some minor changes in its tax laws to close a loophole that previously allowed Apple to be a “stateless” entity for tax purposes.

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