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Steam & XBLA prices could rise after budget kills tax loophole

Jonathan Lester
Digital Distribution, Steam, Taxpayer, UK retail, Valve, XBLA

Steam & XBLA prices could rise after budget kills tax loophole

George Osborne's latest budget closes off a key tax loophole that Steam exploits to provide cheaper games.

Ever wondered why our PayPal and bank statements lead back to Valve Luxembourg S.A.R.L.? It's cheap and cheerful way of getting around VAT, allowing Valve to pay between 3-15% tax as opposed to 17-20%. However, as part of an effort to get more money into HMRC coffers, the new budget is designed to clamp down on this fairly transparent tax dodge and will tax digital games at the rate of the country in which the customer - not the office - is situated.

“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", reads the budget report. "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.”

Speaking to Develop, Harbottle and Lewis lawyer Nic Murfett predicts that Valve will have to up their prices to absorb the extra VAT liability - passing on the expense to us.

"From January 1st 2015, Valve will have to account for the VAT payable on each purchase made within the EU at the rate applicable in the Member State in which the relevant consumer is located and not the Member State in which Valve is registered,” he explained.

“Therefore, it’s likely that, rather than including a flat VAT rate in the retail price for each game that is made available on Steam in the EU, Valve will either start distinguishing the VAT that is payable on each purchase from the retail price of that purchase (as the amount of VAT will vary depending on the Member State in which the consumer is located) or raise the price of all of its games across the EU in order to account for its increased VAT liability.”

Interestingly, Microsoft (and Apple) does much the same with its XBLA downloads, selling them via Microsoft Luxembourg S.a.r.l. Could XBLA prices rise too?

We'll find out whether the 69p deal goes Dodo next year.

Add a comment3 comments
googleberry  Mar. 25, 2014 at 12:17

with the national debt and bank bailout forecast to reach £2.2tr by 2015 while annual spending is still outstripping tax revenues no wonder the government is on the hunt.

Tsung  Mar. 25, 2014 at 12:42

I'm sure Steam charges me VAT at 20% when I buy. Along with Amazon who uses this "loop hole" on some items. You're telling me they currently charge me 20% but pay 5% and pocket the remaining 15%.

No matter; where there are taxes there are also tax-loop holes.

Late  Mar. 25, 2014 at 15:21

Tax loopholes are pretty much impossible to close. (That's not to say the treasury should give up trying!) There's usually "grey" ways around new measures.

If, after the new legislation becomes law, you tell Valve/Microsoft that your billing address is in Finland they'll likely charge you Finland's basic rate of VAT.

I've no idea what Finland's tax rates are; I picked it as a random example. I imagine there's a country with a low rate of tax in Europe that suddenly tens of thousands of people will claim to be residents of.
Luxembourg springs to mind, actually...

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