Wednesday, March 14, 2012

Compliance Among App Store Advantages?

The RetroDreamer blog offers some insight into why the App Store is so much more attractive to developers than Google's Android counterpart.

Apple handles all the transactions with end-users, and cuts developers a check for 30% of the take. For the 30%, Apple handles the credit card transaction fees and the local compliance obligations with tax authorities and anything else the App Store – as the retailer – is obliged to handle by way of legal compliance. The developer in effect sells to Apple here in the U.S. on consignment and gets paid when Apple gets paid. Simple enough, right?

Google structures the transactions as deals between the developer and each end-user directly, and rakes 30% from the table in each deal. What's the difference? Let me count the ways.
  1. Developers using Google's store deal directly with end users with regard to chargebacks, mis-purchases, purchases by children, etc.
  2. With each end-user's click at Google's store, a developer makes a contract for sale with an end user and becomes responsible under local law for compliance with (or violation of) local laws.
  3. Developers using Google's store are responsible for complying with sales tax and VAT obligations, including tax filing obligations, in every jurisdiction where any end-user clicks "buy". This means developers – to comply with applicable law – must learn about their obligations in every jurisdiction in which they "do business" by selling directly. More likely, the developers ignore the law because they have no idea what laws they are violating, and go free only to the extent they are too small to chase. However, success could be expensive. Taking a company public after some success could be hard with this kind of overhanging liability to scores of foreign governments and their punitive tax codes.
Fun, right?

In the U.S. Apple adds sales taxes. In foreign jurisdictions, Apple prices apps in local currency – presumably based not only on currency exchange but also on its obligation as a vendor to comply with VAT. By contrast, for developers 30% Google expects them to go bare. Google doesn't want to run a store, it wants to run a transaction processor. Google wants developers to manage their own store in Google's marketplace.

There are places in which this could be a very big difference. Some jurisdictions are heavy on VAT and unforgiving of nonpayment. I expect to see something about this on the news within a few years, as some successful U.S. developer gets whacked with a tax deficiency notice in Europe and discovers his legal costs exceed the value derived from the foreign business enabled by the Google marketplace.

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