We should not be surprised that Google, Amazon, and Apple decided to pass higher taxes on to consumers through higher prices

After several European countries announced new taxes on the revenues of Apple, Amazon, and Google, the companies have decided to raise prices on digital services.

Apple on Tuesday announced a series of adjustments to its App Store fees in various countries as a result.

Included in the list were four countries whose new digital services taxes (DSTs) have prompted Apple to up its fees for developers: France, Italy, the UK, and Turkey.


Google warned UK advertisers on Tuesday that starting in November they will be shouldering the cost of the tax with a “2% DST fee.” It will also start charging additional 5% fees in Austria and Turkey, according to an email sent to advertisers on Tuesday.

“The Regulatory Operating Costs are being added due to significant increases in the complexity and cost of complying with regulations in Turkey. In Austria and the United Kingdom, the DST Fee is driven by the new digital services tax in these countries,” the email, which was shared with Business Insider by a Google spokeswoman, reads.

“Digital service taxes and other regulations increase the cost of digital advertising,” Google’s spokeswoman said, adding that the firm would pay its taxes wherever it operated and would lobby for international tax reform.

Amazon told UK third-party sellers in August their fees would increase by 2% in response to the tax starting September 1.

An Amazon spokesman told Business Insider the company held off on raising its fees until the legislation for the UK’s tax was passed.

This should not be surprising

Google,  Amazon, and Apple are corporations. Corporations, while they might be charged with paying certain taxes, are not people. And it is people (consumers, workers, and shareholders) who ultimately pay corporate taxes.

How the burden of the corporate tax is divided among these groups depends on how responsive demand is to price changes.

When demand is inelastic (graph 1), a unit increase (decrease) in price results in a less than a unit decrease (increase) in quantity demanded. In this case, corporations have more wiggle room to raise prices before they see demand for their goods decline. So they usually pass the majority of the tax or the entire tax to consumers through higher prices.

On the other hand, if demand is elastic (graph 2), that is a unit increase (decrease) in price results in more than a unit decrease (increase) in quantity demanded, corporations are warier of raising prices. In this case, prices stay the same or only go up slightly, in which case shareholders or workers would bear the majority of the tax increase.

Apple, Google, and Amazon are big companies, whose services are constantly in high demand. As long as this remains true, economic theory dictates that these corporations will likely respond to higher taxes by raising prices.