(This column appears in the June 05 issue of PC Advisor)
How do software vendors get away with charging four times as much in the UK as they do across the pond? Obviously it's just greed. Or is it...
We see lots of rants in the PC Advisor ConsumerWatch forum (www.pcadvisor.co.uk/consumerwatch), and I don't always agree with the content. Sometimes however, I see a complaint so heartfelt and so obviously based on logic that I find myself in total sympathy. Such a case cropped up recently.
Forum member Paul Sadd uses CorelDraw and recently he decided to upgrade from version 10.0 to 12.0. Paul clicked his way to Corel's US site, where the upgrade is priced at $124 (about £65). Unfortunately that was a wasted trip, because Paul lives here in the UK and Corel's US site will only sell to people with an American address. On Corel's UK website, however, the same software is priced at a wallet-wincing £232 plus VAT - over four times the cost.
Horrified at what he saw as overcharging, Paul contacted Corel's UK office for an explanation. "Market forces" was the answer, which left Paul - as well as a good few of our forum members - feeling less than convinced. Of course Corel isn't alone in this; other US-based software companies do a similar thing.
I wanted to know more, so I fired off an email to Corel's press contact. While I waited for a response, I decided to do a little research.
Time for some background
The software industry is critical to the Stateside economy as a major contributor to the balance of payments, job creation and economic growth. Even though the US represents half of all global spending on software, its companies increasingly depend on foreign markets.
Western Europe accounts for around a third of world demand and is too big a market to ignore - or so you would think. After all, this is the age of the global market and the internet. We're all one big happy digital family, right?
Wrong. Enter the EU VAT Directive, which became effective on 1 July 03.
Under the ruling, non-EU vendors of digitally delivered products are required to register in the Union, then collect and remit European taxes based on the location of the customer. For European-based businesses, the applied VAT is based on where the vendor is located. So, while an American company selling a program to a Swedish consumer has to charge VAT at 25 percent, Swedish rate, a UK company selling the same product to the same person would charge only the 17.5 percent UK rate. US-based providers of downloadable software have three options in complying with the rules:
- Establishing a factory in the EU.
- Registering in EU member states.
- Using a special scheme set up by the Directive, which involves choosing a single VAT authority with which to conduct their affairs.
Too much like hard work
No doubt many small businesses are deterred by the complexities of this and just don't comply. They sell to Europe regardless and leave it to larger businesses such as Corel to walk the straight and narrow. Corel's assertion that market forces are to blame for its UK price structure may well be true. Its reply to my enquiry set out to prove this, albeit in classic corporate-speak terms.
"At the moment, currency fluctuations are having the biggest impact on global price differentiation for most international companies. In theory, companies in the US could potentially sell their products to customers around the world. However, this practice is not widely adopted or recommended due to EU tax laws and strict customs regulations."
So there you have it, it's all down to currency fluctuations and EU tax laws. Apparently. But the last word should go to another forum member, who remains anonymous for obvious reasons:
"I work for a software development company. At a recent staff meeting somebody asked the CEO why we charge twice as much for the same product to UK customers as we do in the US.
The answer - 'because we can'."