Tax woes hit PlayStation2
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November 2, 2000: 10:50 a.m. ET
Sony to appeal U.K. decision to slap 2.2% duty on computer game
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LONDON (CNNfn) - Is Sony Corp.'s new PlayStation 2 a video game or a computer?
Sony, complaining that Britain is unfairly charging a duty on its key new product, is arguing that the PlayStation 2 is a computer, a tax-free import under British law. The company is seeking to have a ruling by British customs authorities overturned.
British customs officials have classified the PlayStation2 in the taxable, video game category. The decision is a blow to Sony, because the consumer electronics firm already is reeling from the hefty costs of developing and launching its latest generation game player.
In an interview with CNN's "World Business Today" Thursday, a Sony official said the company will appeal the decision by Britain's HM Customs and Excise department.
The PlayStation2 is "a very advanced computer entertainment system," said Chris Deering, president of Sony Computer Entertainment Europe Ltd., the Japanese firm's marketing and distribution arm for the region. "It has the ability to interface with all kinds of things that computers interface with .... you can even write programs for it right out of the box."
"The intent is to pursue the normal process of appeal and to try to make our case further," he said.
Under the video game classification, the same category for its earlier PlayStation model, the units would be subject to a 2.2 percent tax. The units are expected to retail in Britain for around £300 ($435).
"We have seen a demonstration of the product and we remain of the view that the PlayStation2 is not classifiable as an automatic data processing machine, but as a video game," said Claire Morgan, spokeswoman for Britain's customs department.
The PlayStation2, already available in the United States, goes on sale in Britain Nov. 24. The tariff dispute will not affect the launch date or the product's price, Deering said. He said the company will absorb the cost of the higher tariff and will not pass it on to customers.
Sony's more than ¥250 billion ($2.3 billion) investment to roll out its new PlayStation2 already cut into the firm's July-September net profit, which fell 57.4 percent to ¥19.82 billion, below analysts' expectations.
Sony says its revamped PlayStation2, equipped with Internet-access tools and a DVD-playing console, should be labeled as a computer. The company maintains that the new version is very different from the original model, which was launched in 1995.
The video game classification by the U.K. customs department will affect the duty on imports into all European Union countries, Sony said.
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