Why Apple In Brazil Is Charging Its Customers In Dollars Not Reals - Forbes

An interesting little story that Apple is being hit with a potential fine in Brazil. The alleged crime is to be charging and quoting prices in US dollars for iTunes and the Apps Store rather than using the local currency, the real. Given that it’s Thanksgiving and the Apple PR people are munching turkey not answering the phone my explanation will obviously be a little speculative but my best guess is that it revolves around the Brazilian taxation system.

Here’s the story:

Brazilian Ministry of Justice urged Apple to explain why its iTunes service charges Brazilian customers in US dollars instead of local currency, local media reported on Wednesday.

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Product prices must be quoted in the local currency – the real, since charging in a foreign currency is illegal in Brazil.

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Customers have been required to pay in dollars only with international credit cards after iTunes store became available in Brazil in 2011. The company’s online App Store for iPhone and iPad users also charges local consumers in dollars, said the website.

The reason I think is to do with this rather obscure part of Brazilian taxation on software imports:

SOFTWARE DELIVERED OVER THE INTERNET/ELECTRONICALLY DELIVERED SOFTWARE

Are taxes applied to software delivered to the end-user over the Internet? If so, on what value?

For software delivered over the Internet, the taxes will be assessed on the intellectual value of the property at a rate of from 15% for international royalty remittances to 25% for payment of withholding tax.

Would the situation be different if this software were instead delivered to a distributor who has a license to produce (replicate) and sell the software?

For sale purposes there is no distinction between end-user and distributor.

What are the documentation requirements for the electronically delivered import of digitized products (i.e. software, movie downloads) over the Internet or other networks?

The documentation requirements for the electronically delivered import of digitized products over the Internet are the same requirements used for physical shipments of software. The importer must present an invoice and pay the taxes accordingly, as described above.

So, if you’re selling software over the internet in Brazil you’ve got to hold on to 15-25% of the royalties that will be payable as a prepayment on Brazilian tax on those royalties. And now think through what Apple’s business model for iTunes and the Apps Store is. They stock those two with millions of different apps and songs and movies and everything else. These are all delivered electronically and Apple takes a 30% slice for managing the whole creation. That 70% that goes back to the creators, yes, that’s a royalty. So the Brazilian system asks that Apple, instead of remitting that 70%, must hold on to 15-25% of that sum which the writers of the software/tunes/whatever must then try to claim back from the Brazilian tax authorities after Apple has paid it over.

The chance of Apple agreeing to such a system is what? Quite: somewhere around and about zero I would think. It would be a logistical nightmare to have to do this and that’s even without considering how some, say, Finnish apps writer with three peoplecould ever organise the paperwork to get that withholding tax back on the five copies of their app that sold in Brazil.

So, what are Apple doing? Insisting that the software/tunes/whatever is priced in dollars and is charged to an international, not local, credit card. At which point they can reasonably claim that the sale is not taking place in Brazil. Sure, the customer might be in that country but the transaction was between Apple and the credit card company, neither of which are in Brazil. This neatly sidesteps the whole problem.

It is, of course, possible to get outraged at this sort of behaviour. Certainly there are some who would denounce this as tax dodging or worse. Myself I too am outraged, assuming my speculative answer is correct. For what is happening here is that the Brazilian authorities lust for tax money has meant that no Brazilian without an international credit card (ie, the vast majority) will have access to iTunes or the Apps Store. They seem to have forgotten that the point and purpose of an economy is not to produce tax revenue but rather to increase the living standards of the population. Of which easy access to imports is of course an important component.

via apple - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNE09aEjlqaXeY7xrv_RWz_grdX7Fw&url=http://www.forbes.com/sites/timworstall/2013/11/28/why-apple-in-brazil-is-charging-its-customers-in-dollars-not-reals/