October 23, 2012

Amazon hikes taxes on UK ebook sales

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This tax haven business does not seem bad at all. Amazon, based in tax-friendly Luxembourg for obvious reasons, is making publishers in the UK hand over a 20% VAT — a sales tax — per ebook, despite the fact that Luxembourg only asks for 3%. It is unclear if the extra 17% Amazon collects is passed on in savings to the British consumer.

Ian Griffiths and Dan Milmo write in The Guardian that,

“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 reader…This means a publisher signing up with Amazon would have to agree to a starting price of £8.33 for an ebook retailing at £10 – the digital list price – to reflect the 20% VAT any UK-based ebook retailer would have to pay.

But if it were based on the true 3% rate paid by Amazon, that starting price should be £9.71 – meaning the publisher is already giving the online retailer a £1.38 discount even before it agrees to a wholesale discount that can run as high as 90%.”

As Griffiths and Milmo go on to say, the contracts that publishers in the UK must sign with Amazon—which overwhelmingly dominates the market—stipulate that Amazon cannot be undercut, leaving publishers with very few options.

And of course, Amazon profits from its strong hold on the ebook market in the UK, without adding much to the British economy by way of its own tax contributions. A similar situation exists in the USA, where Amazon exploits the different sales tax regimes state by state, to the fullest extent.

“Earlier this year the Guardian revealed that Amazon generated sales of more than £3.3bn via its UK website last year but paid no corporation tax on any of the profits from that income…in the past three years, Amazon generated sales of more than £7.6bn in the UK without attracting any corporation tax on the profits from those sales.”

All of this situation is legal, apparently. So this capitalism thing is really working out well.

 

 

Ariel Bogle is a former publicist at Melville House.

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