UK closing tax loophole on Steam game downloads

UK closing tax loophole on Steam game downloads
Craig Chapple

By Craig Chapple

March 25th 2014 at 10:00AM

Sales though Valve's eponymous digital store will be charged at 20 per cent VAT rate next year

The UK Government is closing a tax loophole that could see game prices on digital store Steam rise.

Valve currently sells Steam games in the UK through its Luxembourg office Valve S.A.R.L., a country that allows companies to charge a minimum VAT rate of three per cent up to a maximum of 15 per cent, although this will rise to 17 per cent next year.

This means that currently UK consumers are paying lower VAT rates than the country norm for games on Steam.

From January 1st 2015 however, this loophole will be closed completely and consumers will have to pay the VAT rate from where the purchase is made. In The UK's case, this could mean Steam users will be charged 20 per cent VAT on their game purchases.

The changes will also affect other digital sellers such as Apple and could potentially see game and app prices rise.

Changes made to tax loopholes come from the Budget, which states: “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. 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."

Nic Murfett from law firm Harbottle and Lewis has confirmed to Develop that Valve will have to take into account the VAT rate of each EU state from next year, which could result in a uniform rise in game prices or explicitly distinguishing the amount of tax payable. Valve is likely currently charging 15 per cent VAT on titles.

"Valve currently appears to include a flat rate of VAT in the retail price for each game made available on Steam in the EU so that the retail price is always the same, no matter where in the EU the consumer is located," he said.

"Given the existing EU place of supply of services rules, which allow companies registered in a Member State to charge VAT on any purchases made by consumers in the EU at the VAT rate applicable in the Member State in which the company is registered, the flat rate of VAT that Valve includes in the retail price for each game made available on Steam in the EU is almost certainly 15 per cent, which is the current VAT rate applicable under Luxembourg law and also the lowest VAT rate available in the EU.

"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. 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."