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Tech

The End of a Tax Loophole Could Drive Up Download Costs in the UK

You might want to download those guilty pleasures before the end of the year.
Image: Flickr/Dominick

Last week saw the UK’s annual budget announced, and beyond the misguided PR campaigns to pander to voters (lower tax on beer and bingo!) was a potentially less pocket-friendly nugget for anyone who pays for digital downloads like music, films, and apps. Namely: They’re probably going to cost more soon.

The Guardian picked out a largely overlooked clause in the budget documents that sets out rules for charging value-added tax (VAT) on digital companies. The paper reads:

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As announced at Budget 2013, the government will legislate to change the rules for the taxation of intra-EU business to consumer supplies of telecommunications, broadcasting and e-services. From 1 January 2015 these services will be taxed in the Member State in which the consumer is located, ensuring these are taxed fairly and helping to protect revenue.

It’s closing a tax loophole, and essentially means that downloads will have the usual UK rate of VAT applied, which is 20 percent. It seems likely that this extra charge could be passed on to buyers, which means songs could edge over that satisfyingly encouraging 99p price point.

It’s interesting news in a long debate about how tech companies avoid paying UK tax by officially basing their sales in other European countries like Luxembourg, where tax rates are much lower (only three percent). Last summer, some MPs accused Google of “doing evil” with its tax arrangements, and told Christmas shoppers to boycott Amazon over its Luxembourg-based operations.

In this new arrangement, tax would apply according to where the consumer is based, so it doesn’t matter which country the company is headquartered in. The Guardian reports the Treasury could raise £300 million (nearly $500 million) from the change. But while the British public largely supported the drive to push tech giants into paying British taxes, they no doubt won’t be so keen to see prices rise.

On the one hand, it does seem kind of fair. Local businesses have to abide by local tax laws, and plugging a loophole that allowed multinationals to dodge those costs will at least level the playing field there a little, and potentially allow for competition.

But it’s not easy to get people to pay anything for digital media right now, as evidenced by the popularity and financial health of piracy sites, which raises questions as to whether this will negatively impact sales.

Motherboard’s Ben Richmond wrote last week that we’re perhaps already paying more for music than we used to back in the days of CDs and cassettes, and raising the price of digital products likely won’t encourage people to buy more. Even compared to a physical format prices, anything over £1 a song seems pretty steep, not to mention psychologically off-putting.

Quite how the updated tax law will manifest itself for consumers is yet to be seen, but if you’re in the UK, you might want to download Britney’s back catalogue before the end of the year, as justifying guilty pleasure purchases might be a little harder if prices do see an increase.