Price of apps and ebooks set to soar after VAT changes
The price of ebooks, apps and albums may be set to soar after suppliers were hit by the country's 23pc VAT rate since January 1, following a change in EU rules.
A new directive means that VAT on digital goods will now apply at the rate in the customer's home country rather than the rate in the country where the retailer is based.
This means that ebooks bought in Ireland will now be subject to 23pc VAT, compared with a rate of 3pc in Luxembourg, where many of the chief suppliers are based.
The old rules allowed companies such as Amazon and Microsoft to set up offices in nations with rock-bottom VAT rates, and register their European sales there.
The Revenue Commissioners confirmed that the "profound change" to VAT rates for e-services, telecom and broadcasting products would bring in revenues in excess of €100m a year to the State.
The official heading up its VAT policy and legislation division, Dermot Donegan, said it was impossible to predict if prices would rise or suppliers would absorb the extra cost yet.
"Customers may see a price increase, but as competition kicks in that could change," he said.
Mr Donegan said that during meetings with business groups on the issue, some indicated that they would keep prices at the same level, while others said they would add the VAT rate to existing prices.
Mr Donegan said that most booksellers were located in Luxembourg to take advantage of the low rate of VAT of 3pc, which applied to the end of 2014.
"From January this year, the VAT rate which applies is based on the country of residence of the customer," he said.
"This is a profound change. We cannot say as yet what the impact will be for customers. Some suppliers have indicated that they will operate on the basis of universal pricing regardless of the VAT rate applicable in the country of consumption, while others have indicated that they will use dynamic pricing which will reflect the prevailing VAT rate of the country of consumption."
However, he said the 2015 changes to the VAT rules would introduce more fairness into taxation because there would be a level playing field between all operators supplying these services.
"There are opportunities for business because the incentive to locate in a low VAT-rate state will disappear and the customer will pay the same amount of tax regardless of where the supplier is located," he said.
He added that it would create fairer competition between domestic suppliers and those established in other EU countries.
"The level playing field aspect is particularly important for small and medium-sized Irish-established businesses, which will no longer have a competitive disadvantage simply because they are based here," he said.
The changes, which are designed to harmonise taxes right across Europe, will mean that British customers face a 20pc sales tax on digital products.