Kerstin Alvesson at the Swedish Tax Agency (Skatteverket) told The Local on Friday that as an investigation has not yet been opened into the tax case, it was only possible to talk in general terms about sales tax rules.
“The 6 percent sales tax only applies to magazines where the accompanying product does not hold any value. Like kids magazines where you get a toy when you buy the magazine. The price is still the same because the toy has no value,” Kerstin Alvesson explained to The Local.
The tax agency was on Friday unable to comment on whether an investigation would be launched into the innovative tax trick by The Ark who were able to circumvent the higher 25 percent rate levied on music, and pay the 6 percent rate levied on books and magazines instead.
The Local reported at the end of April of the plan by the glam rockers to release their new album entitled In Full Regalia together with a 100 page magazine featuring articles spanning the 20-year history of the band as well as lyrics to the songs.
The magazine went on sale at a retail price of 99 kronor ($12) and it is the value of the magazine relative to the value of the CD that would be the factor considered when determining sales tax levies.
Sales tax laws introduced in 2002 state that magazines with accompanying products, such as books, movies or CD’s, where the product has a value, do not fall under the 6 percent sales tax bracket. Instead there should be an increase in price and they should have a 25 percent sales tax meaning that the band in this case may become liable to pay the difference in price and a tax surcharge.
“Any investigation would have to see whether or not the CD has a supplementary value to the magazine and then should have raise the value. In this case it was not a small flyer, the magazine was 100 pages long, so that would be taken into account,” Alvesson explained.
Alvesson furthermore added that there are additional clauses in the law that could exempt you from having to pay the additional charges with the law allowing for “special circumstances”, such as a first time declaration.
Kerstin Alvesson underlined that she does not want to speculate about the individual case concerning The Ark and their magazine.
“I can’t say that there will be an investigation or what a possible outcome of one would be,” she said.
While the tax break was a cited as a motivating factor for the band’s marketing decision, it was not the only one.
“There are around 80 specialized record outlets and a lot of towns don’t have a record store any more. Instead, we’ll now have 600 sales outlets, so on Monday April 26th hardly anyone will be more than 500 metres from an Ark CD,” the band’s manager Jon Gray told the Svenska Dagbladet daily at the time.
The innovative promotion idea seems to have paid off with album selling gold (more than 20,000 albums) within only a week of going on sale. The album reached as high as second place on the Swedish top chart, Sverigetopplistan.
The Ark has enjoyed enormous popularity in Sweden over the past decade when all four of its albums topped the Swedish charts.