British chancellor George Osborne has announced new rules regarding digital downloads from services such as iTunes, Google Play, Amazon or other game networks.
The announcement made by Osborne is actually linked to a much bigger picture, namely the change of rules in the European Union. Basically, the European Union has decided that starting January 1, 2015, goods sold across borders carry the VAT rate of the country into which the goods go.
This has not applied to digital goods so far, where goods carried the VAT rates of the country which they were being sold from.
Companies such as Apple and Amazon took advantage of the previous rule and signed deals with Luxembourg, a place where VAT rates are flexible and depend on negotiations. Undoubtedly, they managed to get better rates than those from other countries, which is why they found it advantageous.
Now that things are changing, it won’t really matter in which country such companies set their base since the VAT rates will depend on the nations the downloads are made from.
Estimates indicate that in the United Kingdom, the prices of music tracks could go from 99p (€1.18/ $1.63) to £1.19 (€1.42/ $1.96), for instance. It should also bring some extra £300 million (€359 million/ $494.7 million) in VAT revenues in the first year alone, making for a pretty impressive addition for any state budget.