Digital Tax Increase to Take Effect in Europe
Digital Tax Increase to Take Effect in Europe
By MARK SCOTTJAN. 1, 2015
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.
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.”
Comments
Post a Comment