OTT players hit by change in UK VAT loophole

Amazon & Apple may raise prices on digital music sales

digital music sales might be hit

In a move which will at least bring some satisfaction to Blighty’s [UK's] MNOs [Mobile Network Operators], the UK Chancellor has moved to close a tax loophole. The major OTT players such Amazon, Apple & Skype, take advantage of the tax system to pay their VAT bills in an EU country where charges are low. For example, in Luxembourg the VAT rate is a mere 3 per cent whereas in Britain it is currently 20 per cent. New rules will mean that Brits Revenues & Customs will be able to levy 20 per cent VAT on downloads executed in the UK. OTT players could respond by raising prices.

For example, Apple is estimated to have generated around £1 billion in revenues from digital sales.

So it’s calculated that the Brit tax man could benefit from this move – due to come into effect in January 2015, by around £300 million.

By contrast, the UK MVNOs have always been forced to charge their customers the going rate of VAT for prepaid and postpaid charges to their subscribers.

To compensate, it has been speculated that the price of a digital download may therefore have to be raised to £1.16 as opposed to 99 pence in order to compensate.

Whether consumers will respond by purchasing fewer items remains to be seen, for example.

It would, however, give the chance for other businesses which also resell music tracks to steal market share from the likes of Apple by keeping their prices at 99 pence.

As we recently report here, Nokia is rumoured to be planning a big push into music sales in China via MixRadio.

It could take advantage of the tax change to steal sales from arch rivals like Google’s Play and Apple iTunes.

The crackdown on giant corporations which generate huge revenues in the UK but pay minimum tax by moving profits to other EU countries has traditionally proved popular with Brit voters.

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One Response to OTT players hit by change in UK VAT loophole

  1. Pingback: OTT players hit by change in UK VAT loophole | MVNO Dynamics

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