Although it\’s nothing really to do with taxes but about market power.
Companies such as Amazon collect the VAT levy from consumers before passing it on to governments. In the case of Amazon\’s UK ebook sales, it only has to pass 3% to Luxembourg. If it was based in the UK it would have to hand over 20%.
According to a contract seen by the Guardian, Amazon starts negotiations with its publishers on the basis that the UK VAT rate of 20% must be knocked off the cost price.
However, its base in Luxembourg allows it to benefit from a European tax anomaly and pay only 3% VAT on digital books sold to UK readers. Subsequently, Amazon charges the difference between the UK VAT levy imposed on publishers and the actual 3% that it pays, which amounts to an extra £1.38 of profit every time it sells a £10 ebook in this country.
It\’s not \”profit\”, it\’s gross profit.
It\’s also pretty much nothing at all to do with the tax system and is rather just as sign of what market power they\’ve got.
For self-publishers, Amazon is straightforward about its 3% VAT rate .
Sounds no different than other large sellers looking to get additional discount to sell a particular line of goods.
Amazon aren’t that hard to undercut on price though easier to compete in other areas.
There’s an implication there that business to business transactions are usually quoted inc VAT? Anyway, if you are supplying to another EU country (assuming the customer is VAT registered), you simply don’t include the VAT on the invoice.
So, as Martin says, it’s then just a demand for a discount. (Oh, and Paul’s link seems to be missing. I’ve had a quick look and the most relevant page I found seems to be hidden behind a seller sign-in. There is this, though.)
I’m surprised they sell ebooks from Luxembourg, rather than somewhere with no sales taxes at all.
Sorry about the broken link, try this. What it says is that if they sell at the list price you gave them, they’ll pay you royalties on the headline price without deducting VAT at all. If they impose a price, they deduct VAT at 3% in the royalty calculation.
Since when did the UK VAT rate on books change from Zero?
JJ: importing goods & services, even electronic ones, from non-EU countries without paying VAT would put Amazon in breach of VAT law, and since it has physical UK assets then the government could act to recover the money lost. The advantage of the Luxembourg strategy is that it’s tax-compliant whilst also being tax-efficient.
john77: The UK VAT rate on e-books has been the full rate for as long as they’ve existed. It remains zero for print books.
The Tox-Dadger really should be capable of good coverage of tax-dodging: “in-house expertise” you might call it.
Hmmm… zero rate was an exempton if memory serves from when we joined the common market. 1970s?
Martin: sort-of. When the UK joined the EEC in 1973, most goods that were not subject to purchase tax became subject to zero-rated VAT. At the time, it wasn’t an exemption, just part of the system. Subsequently in 1977, EEC member states agreed that in future the minimum VAT rate would be 5%, but that everything that was already zero-rated could remain zero-rated for as long as the national government in question wanted it to be.
(the Luxembourg 3% rate on ebooks is almost certainly illegal – if the UK government gave enough of a toss, they could bring a case to the ECJ and force the Luxemburgers to raise it to 5%)
“According to a contract seen by the Guardian, Amazon starts negotiations with its publishers on the basis that the UK VAT rate of 20% must be knocked off the cost price.”
Is that a contractual negotiation on the pre-VAT price, or is that just applying VAT law, that VAT is not charged on business-to-business sales from one EU Member State to another?
John B (#10), the EU has already started infringement action against Luxembourg:
I wouldn’t put it as high as “almost certainly illegal.” Luxembourg’s VAT rate on physical books has, I think, always been 3%; it has simply made the (commercially sensible) decision that e-books are a type of book.
Article 98 allows for reduced rates on goods and services (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:347:0001:0118:EN:PDF) so there’s no legal reason why “books” must only mean “physical books”; it’s down to the interpretation that the ECJ chooses to put on it.
Would negotiation not start with the buyer (amazon) wanting as low a price as possible so starting with the idea of even lower than needed so could be negotiated upwards? eg ‘we will pay half your wholesale price less 20%’???
Richard: the problem for Luxembourg is that they applied the reduced rate this year, rather than declaring that ebooks were books straight away.
john b (#14), that’s nothing unusual; it’s very common for legislation to take a few years to catch up with changes in the real world.
2 years ago (2010) e-book sales were just 3% of total book sales, and not worth bothering legislating for. To have something in place now is a very fast reaction from Luxembourg.
“The UK VAT rate on e-books has been the full rate for as long as they’ve existed. It remains zero for print books.”
Somewhere there is a rational explanation for this.
Rob…when MacMillan was still alive, you would think this but what member of this government or the last 4 has a connection with publishing?
You can’t put VAT on printed books, it would be an attack on education and scholarship, the chatterati would be outraged, you’d never be invited to a dinner party in Notting Hill or Hampstead again.
But e-books, they’re convenient, and cheap enough. Who cares about VAT on them?