Digital Tax Increase to Take Effect in Europe
LONDON — 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 —
a tax on goods and services similar to sales taxes
in the United States — are part of a continuing push
by lawmakers to tax the region’s digital economy
more heavily. Companies like Apple and Amazon have
been roundly criticized for housing their European
operations in low-tax countries like Ireland and
Luxembourg. The companies say they operate there
legally. |
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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 V.A.T. 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 have the financial muscle to shop
around for the lowest tax rate.
Microsoft has
said that charges for Skype, the Internet calling
service, will increase for European consumers, as the
company alters the V.A.T. levels in line with individual
countries’ tax rates. The European prices for
Microsoft’s other services, including game downloads,
are not expected to change.
Netflix, the video-streaming service that is expanding
aggressively across Europe, does not plan to increase
its monthly charge, and 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 or if the company or publishers would
eventually pick up additional costs.
“People will take their cue from Amazon,” said Mr.
Mollet of the Publishers Association, who added that the
company’s dominant position in Europe’s e-book market
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 also not reduce the 30 percent cut that
they take from each digital sale. The American tech
giants, however, will collect each country’s V.A.T.
charge on behalf of app developers. Some of those are
expected to absorb the tax increases to avoid angering
European customers, who are unlikely to welcome any
increase in the price of games, apps or other digital
downloads.
“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 V.A.T. changes reduce
our revenue? The answer is probably yes.”
Europe’s efforts follow similar attempts in the United
States to pass an Internet sales tax that would force
online retailers to collect sales taxes for state and
local governments, even if the companies do not have a
physical presence in the state. Congress, however, has
yet to pass such a bill...
The tax overhauls also
come as policy makers on both sides of the Atlantic
struggle to keep pace with technological advances. Since
Europe’s V.A.T. changes were approved in 2008, for
example, companies like Netflix have significantly
changed how they operate, moving to relying on Internet
movie streaming that takes advantage of high-speed
broadband and away from DVD rentals sent through the
mail.
“Tech developments are happening very
quickly,” said Gijsbert Bulk, a tax partner at the
accounting firm Ernst & Young in Amsterdam. “Politicians
are trying to find a way to tax the digital economy.”
One of the European countries most affected by the tax
change will be Luxembourg. The small country’s low
value-added tax rates have enticed Apple to set up its
international iTunes business there, and Microsoft’s
digital download operation is also based there.
Luxembourg’s corporate tax system is being challenged by
several European investigations into whether politicians
gave preferential treatment to the likes of Amazon and a
financing unit of Fiat, the Italian carmaker. And
Jean-Claude Juncker, Luxembourg’s former prime minister,
who now runs the executive arm of the European Union
responsible for the continuing investigations, has been
criticized for his role in promoting the country’s
low-tax policies.
In preparation for potential
lost income from value-added taxes, Luxembourg’s
lawmakers have announced an increase in the country’s
value-added rate on most goods to 17 percent from 15
percent, though it will still offer heavily discounted
rates for e-books and some other products..
“Luxembourg is going to lose an enormous amount of
revenue,” said Karen Robb, a tax partner at the
accounting firm Grant Thornton in London. “There will be
fewer compelling tax reasons for companies to stay in
Luxembourg.”
Source::
THE NEWYORK TIMES, dated 01/01/2015......... |
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