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VAT Publishers Amazon

Amazon makes UK publishers pay 20% VAT on ebook sales when it only pays 3%

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By The Drum Team, Editorial

October 22, 2012 | 2 min read

It has been revealed that Amazon is making British publishers pay 20 per cent VAT on ebook sales, despite paying only 3 per cent on thier own tax bill.

Companies such as Amazon collect the VAT levy from consumers before passing it on to governments. According to the Guardian, as the retailer has been based in Luxembourg since 2006 it only has to pass on 3 per cent VAT to the Luxembourg government for ebook sales as opposed to the rate of 20 per cent if it were based in the UK.

It is therefore surprising that Amazon starts negotiations with UK publishers on the basis that the UK VAT rate of 20 per cent must be lifted from the cost price.

If a publisher agrees to a starting price of £8.33 for a £10 ebook based on the 20 per cent rate instead of £9.71 based on the 3 per cent rate that Amazon pays, it means it is already giving an extra £1.38 discount before it even agrees to a wholesale discount.

The online company then negotiates further discounts on top of the VAT subsidy, which in some cases can result in publishers receiving less than 10 per cent of the price paid by the online customer.

For example, one unnamed publisher told the Guardian that they negotiated an ebook deal for a well-known figure and Amazon sought a deal that would have resulted in a 92% discount. The publisher refused the terms, which would have seen them receive just 80p on an ebook selling for £10 on Amazon's UK website.

Although none of these arrangements are technically illegal, it is unclear wither Amazon passes on any of these gains to the consumer.

It said in a statement that: "Our goal is to make it easy for readers to discover and read the books they love by expanding access to millions of books in both digital and print.

"We've been able to do this by focusing on innovation, as exemplified by Kindle, and by offering customers the widest selection at the best possible prices and service."

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