Starting January 1, 2015, the European Union has rolled out a new tax law to tape the earlier tax loophole. It is to be noted that the gap in the Europe’s tax policies has allowed big internet firms to charge less VAT (value added tax) from customers on digital goods.
Therefore, the new arrangement will prevent big companies like Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Google Inc (NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT) to derive undue advantage from the earlier law.
Taping the Tax Loophole
As per the previous law, companies were allowed to charge VAT according to the office of those companies and the varying VAT rates across the Europe helped companies set up their offices in countries with lowest VAT rate. For example, Amazon.com, Inc. (NASDAQ:AMZN) operated solely from Luxembourg, where the VAT rates are as low as 3% on e-books.
The decision to impose new tax law will now make the business tough for each and every other internet company. The EU has supported its move as it visualizes the decision to benefit small players now. On the other hand, critics differ stating that the new tax law will only impede the growth of small competitors.
End Customers Will Pay the Price
However, the impact of this decision will vary from country to country. For example, countries like Luxembourg, Malta and Cyprus will face the heat due to their lower VAT rates below 20%. Other countries like Hungary and Ireland will be relieved due to their VAT rates above 20%. In fact, Google Inc (NASDAQ:GOOGL)’s Play store will get cheaper due to its office located in Ireland with 23% VAT rate.
As of now there is a lack of clarity as to how such revised rates would impact the companies and their businesses, but it is anticipated that the end consumers will bear the brunt.
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