David Heinemeier Hansson

February 4, 2022

Apple reveals road map to tax any business with an app at 27%

In response to getting fined €5 million by the Dutch competition authorities, Apple has revealed an even more draconian, invasive, and frankly, terrifying scheme to collect their App Store tax from dating-app developers operating in The Netherlands. One that grants themselves the right to audit the books of any developer who dares refuse Apple's own in-app payment system, still collects a preposterous 27% of the economic activity, and mandates a scary-sounding disclaimer to discourage users from even trying it. Yowza!

Here's how Apple lays out the framework that'll govern the economic and operating punishment that exactly nobody would ever in their right mind volunteer for (my emphasis):

Consistent with the ACM’s order, dating apps that are granted an entitlement to link out or use a third-party in-app payment provider will pay Apple a commission on transactions. Apple will charge a 27% commission on the price paid by the user, net of value-added taxes. This is a reduced rate that excludes value related to payment processing and related activities. Developers will be responsible for the collection and remittance of any applicable taxes, such as the Netherlands’ value-added tax (VAT), for sales processed by a third-party payment provider.

Developers using these entitlements will be required to provide a report to Apple recording each sale of digital goods and content that has been facilitated through the App Store. This report will need to be provided monthly within 15 calendar days following the end of Apple’s fiscal month. To learn about the details that will need to be included in the report, view an example report. Qualifying
developers will receive an invoice based on the reporting and will be required to remit payment to Apple for the amount invoiced within 45 days following the end of Apple’s fiscal month. In the future, if Apple develops technical solutions to facilitate reporting, developers will be required to adopt such technologies.

Please note that
Apple has audit rights pursuant to the entitlement’s terms and conditions. This will allow Apple to review the accuracy of a developer’s record of digital transactions as a result of the entitlement, ensuring the appropriate commission has been paid to Apple. Failure to pay Apple’s commission could result in the offset of proceeds owed to you in other markets, removal of your app from the App Store or removal from the Apple Developer program.

While this package is clearly Apple just giving the Dutch authorities the middle finger, it also reveals a road map that could be driven far beyond The Netherlands. By granting themselves audit rights "pursuant to the entitlement's terms and conditions", they've shown how they can apply their 27% tax to any developer's economic activity at will. Under the threat of App Store expulsion – with the subsequent ruin of any platform-dependent business – they don't even need a technical solution to collection. Coerced reporting requirements together with monthly invoices might be old school, but it'll work just fine.

It's a small hop from there to amending the App Store guidelines globally such that this new tax regime will apply to all apps, from all businesses. If Facebook thought it was tough to deal with the $10 billion/year loss from Apple's ATT, it'll be absolutely nothing compared to the pain associated with a monthly invoice for 27% of the economic value derived from anyone using Facebook, Instagram, or WhatsApp on an iPhone.

Apple has, perhaps inadvertently, just revealed to the world how they might go from a three-trillion dollar company to a hundred-trillion dollar company. Just send every business dependent on an app a demand to audit their books, then mail them an invoice for 27% of their economic activity.

About David Heinemeier Hansson

Made Basecamp and HEY for the underdogs as co-owner and CTO of 37signals. Created Ruby on Rails. Wrote REWORK, It Doesn't Have to Be Crazy at Work, and REMOTE. Won at Le Mans as a racing driver. Fought the big tech monopolies as an antitrust advocate. Invested in Danish startups.