Currently over 34,000 UK digital music distributors choose to site offices in Luxembourg to both competitively price downloads and to take advantage of a tax levy that allows these platforms to pay less tax.
At the time of writing, in the UK, homeland businesses have to pay a fixed 20% tax to the government, whereas a business sited in Luxembourg is subject to their own national tax of 15%. Even if these platforms only operate within the UK, our national government issues a 5% tax levy to respectfully abide by the countries tax laws which, in turn, makes it worthwhile for them to set up an overseas office to avoid paying an inflated rate regardless of their operations.
In the latest budget report, enforced by a European initiative to make sure that taxes are levied in the country where the products are sold and not where the business has its offices, George Osborne announced a change to the Finance Bill which could mean that these 34,000 businesses will no longer be entitled to this 5% levy as of the 1st of January 2015. It is anticipated that closing this loophole could bring in an extra £300million within its first year and, if legal music download statistics continue to rise, this could be dramatically more in the years following.
Currently it is unclear whether these changes could mean price hikes for music downloads, but what is sure is that the major players, ie. Apple and Amazon, will be hit the most.