Digital tax increase to take effect in Europe 

A change in fiscal rules in the EU is raising the tax on many purchases of digital content, such as e-books.

Europe’s tax showdown could be headed straight to people’s wallets.

With the new year, a change in fiscal rules in the European Union is increasing the tax on many purchases of digital content like e-books and smartphone applications.

Under the new rules, first approved in 2008, the tax rate on digital services like cloud storage and movie streaming will be determined by where consumers live, and not where the company selling the product has its European headquarters. Tax experts say Europe’s revamped rules could add up to an extra $1 billion in annual tax revenue for European governments.

What remains unclear is who in the 28-country bloc will pay most of the bill.

“There inevitably will be a price change,” said Richard Mollet, chief executive of the Publishers Association, a British trade body. “The question is whether retailers, publishers or customers will have to take on board any increase.”

The changes to Europe’s so-called value-added tax, or VAT — a tax on goods and services similar to sales taxes — are part of a continuing push by lawmakers to tax the region’s digital economy more heavily.

Many of the world’s largest tech companies selling digital products, like Amazon and Microsoft, now house their European digital businesses in Luxembourg, where the VAT rate is as low as 3 percent for e-book purchases. In contrast, countries like Britain charge companies a 20 percent sales tax for selling e-books. Analysts say the current rules provide an advantage to global companies that shop around for the lowest tax rate.

Amazon said that the cost of its annual Prime membership, which includes online video content in some countries, would not rise. An Amazon spokesman, however, declined to comment on whether the expected tax increase for e-books would be passed on to customers.

“People will take their cue from Amazon,” said Mollet, of the Publishers Association, who added that the company’s dominant position gave it significant weight in setting pricing. “In the first few weeks, we’ll likely see a lot of price volatility.”

Google and Apple, which run the world’s two largest app stores, will collect each country’s VAT charge on behalf of app developers. Some of those are expected to absorb the tax increases to avoid angering European customers.

“Everyone is going to face the same problem; it will be tough to raise prices,” said Andy Payne, co-founder of Mastertronic Group, a small British video-game publisher. “Will the VAT changes reduce our revenue? The answer is probably yes.”

 

Source: SeattleTimes – Digital tax increase to take effect in Europe

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