Conflicting reports have hit the net today surrounding Apple's plans for setting up an iTunes operation in the Channel Islands.

According to the Daily Telegraph, Apple intends to shift it's UK iTunes office to the nearby tax haven to avoid the 17.5% VAT currently applied to all songs bought online.

The effect of this would be to lower the price of individual tracks from £0.79 to £0.67. It's worth noting that even this lower price is still US$1.18 compared with the iTunes USA price of 99 cents - 56 pence at today's rate.

The move would echo major retailers Tesco, Asda, Britannia, HMW, Amazon and Woolworths who have all set up in the Channel Islands in the past 2 years. The intention is to take advantage of a law which states that retailers outside the EU can sell goods costing less than £17 to the UK mainland VAT free.

This tactic is central to the meteoric rise in popularity of Play.com, but Apple deny this is their intention.

Macworld received a statement from an Apple representative stating "this report is not true". The Daily Telegraph report was "completely wrong" apparently.

"In order to provide an optimum service quality to our customers, we are evaluating the need for a Channel Islands Apple Online store," an Apple spokesman told vnunet.com. Apple are suggesting that since the current UK iTunes store is based on the mainland, Channel Island residents are mistakenly being charged VAT for their purchases.

At a glance, this might appear to make perfect sense, until you find out that the Channel Islands has a population of just 162,000. To put that into perspective, this is less than the population of Bournemouth, the sleepy south-coast town ranked 34th in the 2001 census. It is equivalent to setting up a dedicated iTunes store to exclusively serve the inhabitants of Dayton, Ohio.

Considering that Australia, with a population of 20 million, has only had iTunes since October, it seems even less likely that Apple would bother to cater specifically to such a small group. Despite the denials, the VAT-free plan appears more plausible. However, the British Government is becoming increasingly agitated by companies exploiting this loophole, said to soon cost the Government some £200 million in lost revenue.

Only time will tell.

Is iTunes UK too expensive? Would you buy more legal music downloads if the cost dropped to 65p compared with today's 79p? Have your say in our Forums.
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