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Amazon forces UK publishers pay 20% VAT on ebook sales

Online retailer Amazon is forcing British publishers to cover the 20% VAT costs on ebook sales, despite the Luxembourg-registered company paying just 3% to the tax regime there.

Amazon is estimated to sell nine out of 10 ebooks in the UK, and exploits its Luxembourg tax status to garner even bigger profits from publishers, The Guardian reports.

Currently, businesses like Amazon collect the VAT levy from buyers before passing it on to governments. Yet when it comes to Amazon's UK ebook sales, it legally only has to pass on 3% to Luxembourg. That figure would rocket to 20% were it based in the UK.

The newspaper says it has seen an Amazon contract that reveals how the e-tailer kicks off its negotiations with publishers on the basis that UK VAT of 20% is removed from the cost price.

In effect, Amazon then benefits from an extra £1.38 of profit every time it sells a £10 ebook in the UK.

It then negotiates even more heavy discounts which can mean publishers receive less than 10% of the price paid by the online customer, says the report.

Publishers tend to play ball with the arrangement for fear of being removed from the site.

One unnamed publisher told the Guardian that Amazon tried to cut a deal that would have resulted in a 92% discount. The publisher refused as it would be left with just 80p on an £10 ebook on Amazon's UK website.

The contract seen by the Guardian states that Amazon's starting price for discount negotiations is exclusive of 20% VAT meaning a publisher signing up with Amazon would have to agree to a starting price of £8.33 for an ebook retailing at £10.

Should it be based on the 3% VAT rate paid by Amazon, that starting price should be £9.71. The report says that Amazon typically seeks a discount of up to 65% on ebooks including the VAT charge.

The contract also stops the publisher from offering a better deal to a rival retailer without automatically giving the same discount to Amazon.

While none of Amazon’s arrangements are illegal, the paper says that many within the British publishing industry fear such practices will force smaller and medium-sized publishers out of business.

Earlier this year the Guardian revealed that Amazon had amassed over £3.3bn through its UK website in 2011 but had paid no corporation tax on any of the profits from that income.

Published 22 October 2012


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