There are two different routes the companies could take to comply with the new policy …
Japanese sales taxes on apps
The change is designed to correct an odd quirk in the way that sales taxes are levied in Japan.
In most countries, the retailer is responsible for adding on sales taxes before the consumer pays the total bill. They then pass on the sales tax element to the government.
In the case of the App Store, Apple collects the sales tax element, and deducts this from the gross amount due to developers before the Cupertino company takes its own cut. The same applies to the Google Play Store.
But things currently work differently in Japan. In the case of apps, it is the developer, not Apple or Google, which must levy the tax. That gets complicated for foreign developers, like those based in the US. If they have no business presence in Japan, they have no way to collect and repay sales tax.
Apple and Google will be responsible
Nikkei Asia reports on the new policy.
Japan will make app store operators like Apple and Google responsible for paying consumption taxes on content sold by foreign developers, to more effectively recover levies collected by small companies with no physical presence in Japan.
The change, which was detailed in a Finance Ministry report released Tuesday, aims to create a more level playing field for Japan-based content creators that can more easily be taxed directly.
Two possible routes for compliance
There are two possible ways Apple and Google can comply with the requirement.
First, they can add the sales tax to app prices, increasing the price paid by consumers. They then pay this sum to the government, and the net amount received by developers is unchanged.
Second, they could leave app prices unchanged, effectively declaring the amount to be inclusive of sales tax, and deduct the tax percentage before taking their own cut – leaving developers with a smaller net revenue.
We don’t yet know which route either company will take.
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