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Apple tax unfair to other streaming services, EU says in Spotify-triggered lawsuit

Apple tax unfair to other music streaming services, EU says in Spotify-triggered lawsuit
(Image credit: Apple Music)

Apple is breaching EU competition law, unfairly disadvantaging rival music streaming services, the EU has said. In its preliminary findings of its report into Apple's App Store and its tax on in-app purchases like subscriptions (aka the 'Apple Tax'), the European Commission says Apple's "high commission fees" and ban on letting rivals tell customers about other ways to subscribe is harming competition.

As the European Commission's Margrethe Vestager put it, "consumers [are] losing out".

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The case started back in 2019 when Spotify accused Apple of anti-competitive practices. Apple charges app makers a 30 per cent cut of revenue from in-app purchases like subscriptions in exchange for hosting them on the App Store. Spotify claimed that because the tax applied to apps that compete directly with Apple's own services – in this case Apple Music – it would force rivals' prices up, and hence was anticompetitive.

Epic Games made a similar claim when it breached App Store rules and implemented its own in-app payment system within the Fortnite iOS app.

The European Commission's stance does not represent a final ruling, however, just what is known as a "Statement of Objections" to Apple's behaviour.

In a statement, the Commission said Apple "distorted competition in the music streaming market as it abused its dominant position for the distribution of music streaming apps through its App Store".

The App Store's popularity makes Apple a "gatekeeper" to owners of iPhones and iPads, Vetstager added. "By setting strict rules on the App store that disadvantage competing music streaming services, Apple deprives users of cheaper music streaming choices and distorts competition," she continued. "This is done by charging high commission fees on each transaction in the App store for rivals and by forbidding them from informing their customers of alternative subscription options."

Apple now has the chance to respond before the final ruling. If it fails to convince the Commission, it could be fined up to 10 per cent of its annual revenue, and be forced to change how it charges rival streaming services in the App Store within the EU.

In response, Apple said it was proud of its role in helping Spotify become the world's biggest music streaming service and pointed out that Spotify doesn't pay commission on over 99 per cent of its subscribers (and only 15 per cent commission on the remaining subscribers acquired through the App Store).

It also accused Spotify of wanting to have its cake and eat it.

"At the core of this case is Spotify's demand they should be able to advertise alternative deals on their iOS app, a practice that no store in the world allows," Apple said in a statement. "Once again, they want all the benefits of the App Store but don't think they should have to pay anything for that."

Spotify's CEO Daniel Ek responded to the Commission's Statement of Objections by saying "we are one step closed to creating a level playing field".

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The Commission isn't expected to issue a final ruling for at least another year. Then Apple will have the chance to appeal any fine that is levied against it.

The EU isn't shy of taking tech giants to task. Since 2010, it has filed three separate antitrust cases against Google, fining the firm billions of dollars. In 2016, it fined Apple $14.5 billion over tax arrangements, too.

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