dont get the relevance for the milton friedman quote but then it becomes a question of whether people will still do as much business with apple, amazon and starbucks etc. if the prices are deemed too high then they have to rethink their concept.
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App Store and iTunes Prices in UK May Increase Up to 20%
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dont get the relevance for the milton friedman quote but then it becomes a question of whether people will still do as much business with apple, amazon and starbucks etc. if the prices are deemed too high then they have to rethink their concept.
Let's play a new, related game. Top-teir songs on the US iTunes store cost $1.29; top-teir songs on the UK iTunes store cost £0.99. $1.29 = £0.78. tl;dr we already pay the 20% VAT rate on our songs, Apple just moves around their taxes so they they get to actually pay 3% on it and take the 17% difference for themselves. Electronics products in the US are almost always cheaper than elsewhere, one of the reasons given for this is that US prices don't include state taxes, so we in the UK are used to a little mark up, but a mark up on a mark up? Pass.
Related note - the Mac App Store requires developers to sell their products at the same price as can be found directly from the developer, however the way in which those two money sources are taxed is different - if I buy a £10 app from the developer, he or she is probably small time and doesn't have the size to run shell corporations and loopholes like Apple does and pays 20% VAT, so gets £8; if I buy the same £10 app from the app store, the revenue post-VAT is still £9.70 if Apple pays all the VAT (which it does since the purchase is technically made to Apple, not the developer). How the developer gets paid next is a little more foggy to me since I don't know the exact agreements, but I can see it happening two ways: 1) Apple gives the developer their 70% cut post-VAT as if 20% VAT had been paid, i.e. £5.60 and Apple takes the remaining £4.10 making it significantly more than 30% of the app's value; 2) Apple passed on the 3% 'reduced-VAT' rate to the developer and Apple makes its normal 30%, at any rate if that VAT rate is increased to what it should be at 20%, Apple still takes a 30% post-VAT cut. Your maths assumes Apple graciously pay's the developer's VAT rate, which as you point out is ridiculous since in any country with a 30%+ tax rate Apple would always be making a loss.
Sadly I think this is going to be a case of everything will rise 20%, I don't think Apple will handle this hike in price, there is plenty of time from now until then.
If someone has an Apple device they will buy Apple apps, fact, the cost will not be an issue. Apple know this and I think this may just damage the Apple brand more in the UK as an even expensive brand but then again this will impact not just Apple but all the major brands.
I think if Google and Samsung adsorb the cost and Apple don't it could be a big brownie point for them. I can see the adverts now "Our apps don't cost a fortune"
If someone has an Apple device they will buy Apple apps, fact, the cost will not be an issue. Apple know this and I think this may just damage the Apple brand more in the UK as an even expensive brand but then again this will impact not just Apple but all the major brands.
I think if Google and Samsung adsorb the cost and Apple don't it could be a big brownie point for them. I can see the adverts now "Our apps don't cost a fortune"
You are correct although it's not clear (to me or to most I imagine) whether the current tax is 3% or 15% or somewhere in between.
Not sure if this was was mentioned...
To those who are unfamiliar with the way taxes in the US work, here it goes. We pay Amazon sales tax when we are shipping to a state where Amazon operates. For example, if Amazon has a call center, warehouse, etc we pay tax. If we see an item for $5.00 then we pay $5 + 5-9% State Sales Tax. We do the same thing for Apple but I think all states are applicable not just where apple operates. This tax is then payed to that state by apple, not the consumer. In this case the retailer has no control of tax, and the price is independent of the tax. So when we see something advertised for price X we pay price X plus tax. If there is anyone that knows more than me please correct me if I am wrong. I am open to the corrections.
To those who are unfamiliar with the way taxes in the US work, here it goes. We pay Amazon sales tax when we are shipping to a state where Amazon operates. For example, if Amazon has a call center, warehouse, etc we pay tax. If we see an item for $5.00 then we pay $5 + 5-9% State Sales Tax. We do the same thing for Apple but I think all states are applicable not just where apple operates. This tax is then payed to that state by apple, not the consumer. In this case the retailer has no control of tax, and the price is independent of the tax. So when we see something advertised for price X we pay price X plus tax. If there is anyone that knows more than me please correct me if I am wrong. I am open to the corrections.
I think i am split over-this decision:
on one side, i feel that tax avoidance by companies like apple, amazon and starbucks is diabolical, given that the customer originated from the uk - a deontological virtue, to pay taxes in a righteous manner
on the other side, this means all my apps will cost me more
You have got your taxes totally mixed up.....
Corporation tax and VAT are not the same.
And not just EU countries, any supplier, anywhere in the world, providing telecoms, broadcasting or electronic services to a consumer in the EU "Must charge VAT in the EU country where the customer belongs." (http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm#new_rules)
This is not new, requirements were set out across the whole EU in 2013 for implementation from 1st Jan 2015. Its just a peculiarity of the way UK taxation law works that this was included in the 2014 Finance bill and brought to prominence in the recent budget.
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Not sure some people understand what UK VAT is and how it works. I run a business so I can tell you.
Let's say you charge £10 + VAT for your product. That means the customer pays £12 for the product. However as a business you have to then take that £2 that you have collected in VAT and give it to the government (HMRC). So you don't get to keep the £2, you're merely collecting it from the customer on behalf of the HMRC.
So if Apple sells from Luxembourg and charge 3% VAT, all they do is collect that 3% and give it to the Luxembourg government. Under this change Apple would simply charge 20% VAT and give it to the UK government instead. So Apple doesn't make any more profit. We the customer pay a higher price to allow for the higher VAT rate, the UK government gets more VAT revenue and Luxembourg get no VAT revenue.
Let's say you charge £10 + VAT for your product. That means the customer pays £12 for the product. However as a business you have to then take that £2 that you have collected in VAT and give it to the government (HMRC). So you don't get to keep the £2, you're merely collecting it from the customer on behalf of the HMRC.
So if Apple sells from Luxembourg and charge 3% VAT, all they do is collect that 3% and give it to the Luxembourg government. Under this change Apple would simply charge 20% VAT and give it to the UK government instead. So Apple doesn't make any more profit. We the customer pay a higher price to allow for the higher VAT rate, the UK government gets more VAT revenue and Luxembourg get no VAT revenue.
I think the procedure for suppliers outside the EU is slightly different (I think it's a modified version of the scheme that's already in place for non-EU suppliers).
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Never going to happen.
That's all well and good, but Apple also have the option to:
a) Use the increase in the VAT rate to disguise an overall increase in the net price (e.g. by increasing prices by a flat 10p and blaming it on the VAT increase)...retailers do this all the time.
b) Absorb the cost of the VAT increase by reducing the net price, so the VAT inclusive price remains unchanged.
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Nobody has been avoiding taxes. You either haven't read or haven't understood the story.
The place of supply rules for VAT are changing. Previously, Apple were correctly charging Lux. VAT. From Jan 2015 they'll have to charge local VAT.
while you are right that apple dosent make any more profit whether the VAT is 0% or 100% they do however have a product at a more enticing price which may or may not have in impact in real life. how much more expensive can the apps be before the sales decrease?
Yes they could. When VAT went up from 15% to 20% a few years ago Apple simply put up all their prices to reflect the extra 5% VAT. They didn't use it as an opportunity to raise their overall prices as far as I can remember. I hope they do the same again. The only problem would occur if that means prices go up from 69p to 72p or something like that as Apple seems to like all their prices to end with a 9.
That's exactly why any increase in price is not going to precisely match the change in VAT. My own view is that for the UK at least, the change is small enough that Apple will absorb it. You have to consider the psychological barrier of £1 and an increase from 99p will break that, potentially resulting in lower overall sales.
That's true but it would only put them on a level playing field with others. If you go into a retail shop in the UK and buy a boxed game you pay 20% VAT.
This new EU regulation will put up the prices of iTunes downloads across the board throughout the EU not just in the UK.
That is just the start. Lots of governments are gunning for Apple, Amazon and Google for their mass tax avoidance schemes by shoveling everything through Ireland or Luxembourg. It's only a matter of time before they bring them to an end one way or another
exactly. these companies have made billions in profits doing this and been at a huge advantage compared to smaller and more traditional businesses.
but as i speculated will this increase (across the eu as you point out) decrease sales for apple? were they selling more because of this and will the public accept a 17% increase (if the VAT was 3%)?
I'm pretty sure Apple didn't profit from using this loophole, consumers did. The only way they would have profited is if more people bought an app because it was cheaper, which doesn't seem like a bad thing. Apple (and other companies) were using this loophole to keep prices for consumers down!
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Apple was not the one profiting from this, consumers were! You paid less for downloads before because you were paying less tax. If you support the tax, you should support paying the tax.
When revenue drops from outside the US then the US prices will eventually increase to cover the shortfall. I live in the UK so I am sorry for making your prices increase.
I think you are confusing the threshold at which VAT must be collected, and my point, which is that the VAT is a tax on purchases, not earnings. VAT is collected by a vendor on behalf of the government for all sales, but has no relation to the vendor's earnings. It is a direct tax on the consumer based on the price of the good/service purchased by the consumer. Therefore, if Apple previously did not have to collect the tax for certain downloads, that benefit is received by the purchaser, not Apple. Said another way, VAT is a tax on consumers, not businesses. Consumers are the beneficiaries of this tax avoidance scheme, if we want to call it that, not Apple. At least, that is how I would characterize this situation.
Oh I know! I use it at Uni, but being the last few weeks of uni, I really need to!
It looks so much better and runs so much smoother and just, urgh, money!