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.