Chancellor George Osborne is closing a loophole that allowed the sale of online music, ebooks and apps to avoid British VAT, in a move interpreted as an attack on Apple and Amazon.
In a clause buried in last week’s Budget announcement, it was announced that from 1 January 2015, digital services will be taxed in the member state in which the consumer is located to ensure they are "taxed fairly and helping to protect revenue".
Companies including Apple and Amazon sell virtual goods via offices in Luxembourg in order to take advantage of the country’s 3% tax rate, which compares favourably to the 20% VAT rate in Britain.
However, the Government is closing the loophole to change rules for the taxation of intra-EU business to "consumer supplies of telecommunications, broadcasting and e-services.
Many are predicting this could spell the end of the 99p download if companies such as Apple and Amazon decide to pass on the additional tax rate to the consumer.
The crackdown by Osborne is likely to please traditional retailers who have lobbied against the "unlevel playing field" between high-street retailers and online rivals such as Amazon.
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