UK app prices may rise as government closes Luxembourg tax loophole

The UK is looking to get its fair share of taxes for goods consumed online.
Written by Liam Tung, Contributing Writer

UK consumers may see the cost of online content and apps rise as the country's government looks to close a loophole that had exempted some retailers from having to pay the nation's 20 percent value added tax (VAT).

From January 1 2015 it could make less sense for companies like Apple and Amazon to locate their content services in Luxembourg, the EU nation where iTunes UK is served from and where Amazon has its European headquarters.

Previously, companies based in Luxembourg but selling to customers in the UK could charge Luxembourg tax rates on digital purchases, such as apps or other downloads, of between three percent and 15 percent. Now, according to The Guardian, changes to the UK tax regime spurred by last week's budget will mean that companies like Apple and Amazon will have to charge the UK's 20 percent VAT. 

The changes were announced by chancellor of the exchequer George Osborne in Thursday's budget and concern the rules for the taxation of intra-EU business to consumer supplies of telecommunications, broadcasting and e-services," the budget document (PDF) said.

"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 added.

According to The Guardian, previous reports have found that UK was losing more than £1.6bn in VAT on digital services.

It’s not clear how much the changed rules will affect prices though. Apps bought on iTunes in the UK are currently charged with Luxembourg's 15 percent VAT, according to one app developer's analysis.

Also, Luxemburg's super low VAT of three percent applies for books and cultural events, while the the UK's rate for books and newspapers is 0 percent.

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