UK declines to lower VAT on e-books, gives Amazon big advantage in UK e-book sales

After the matter came up in Parliament last week, the UK has once again declined to lower the value-added tax on e-books, which currently stands at 20%. The Bookseller reports David Gauke, the UK’s exchequer secretary, said the UK could not do this and remain in compliance with European Union law, which classes electronic media as services rather than goods and requires they be taxed at the higher rate.

Other European countries, including France and Luxembourg, have reduced their own VATs on e-books significantly. France has told its publishers it will pay any fines the EU imposes on them for flouting its VAT law.

The VAT drop in Luxembourg (to 3%) gives Amazon a fairly large competitive advantage, since that’s where Amazon’s European operation is based—so UK e-book buyers will only pay a 3% tax when they buy an e-book from Amazon, as opposed to the 20% they have to pay everyone based in the UK. The EU is going to change how VATs are handled so that buyers will pay the tax of their country rather than that of the vendor, but that change will not take effect until 2015.

7 Comments on UK declines to lower VAT on e-books, gives Amazon big advantage in UK e-book sales

  1. Electronic media as services rather than goods? It’s clear that the EU Parliament is clueless. Add that to a long list that includes banning the importation of bananas due to their curvature and an attempt to ban wooden clogs as unsafe.

    As usual, Amazon is scheming to evade the taxes that almost everyone else has to pay. John Rockefeller and his infamous Standard Oil engaged in similar schemes (railroad shipping fees when oil went by tanker cars) and media exposure of that and his other sins earned him the title, “the most hated man in America.” I suspect something similar will happen to Jeff Bezos.

    I won’t praise Luxembourg since it provides at a tax haven for giant corporations that isn’t open to small, local stores. But I will praise the French for their efforts to ensure that ebook market isn’t totally dominated by any one supplier.

    The priority that Europeans place on controlling their cultural distribution systems may prove Amazon’s undoing.

  2. Heh. Folks keep praying for *something* to magically be Amazon’s “undoing”.
    How about doing as good a job at selling products?
    Is that too much to ask?
    There’s nothing magical abut Amazon: they are simply a lean, technologically savvy company that is constantly looking for ways to turn a buck and satisfy their customers at the same time. (Note the second clause.)
    If they see an opening, they use it; what they do, others could, too.
    After all it wasn’t that long ago when Amazon *was* the “little guy”.
    Sitting around wringing your hands about the “plight” of the “little guys” is assuming the “little guys” are inherently inferior.
    Whatever happened to “What a man has done, another can aspire to?”
    New year coming: maybe we’ll see more competition and lest whining?

  3. Felix, I’m desperately craving an explanation of how basing yourself in a foreign country for tax reasons can be considered “doing a better job”.

  4. DensityDuck, let me jump in here and answer for Felix. Basing yourself in a foreign country to save your customers money in buying your products could definitely be considered “doing a better job.” Why would you not think so? Felix is saying that others could have done the same. Yes, they could, and they didn’t, so why get mad at Amazon because they came in first?

  5. Mary: Dodging taxes by basing yourself offshore is not about “saving your customers money”. It’s cheating. It’s manipulating the system so that you can cut your operating expenses in a way that other retailers are legally barred from doing. It’s not “smart business practice” any more than is using Chinese slave labor to build your products.

  6. DensityDuck: nobody is legally barred from basing their company in another country. The UK retailer are being cheated, yes, but not by Amazon – they’re being cheated by the nutty EU legislation and by UK’s decision to keep the 20% VAT rate on ebooks, despite the fact that by the already announced change in legislation, they would be quite safe in adopting the reduced rate immediately.

  7. European – you are 100%. Each country sets it’s own taxes. Amazon chose not to play UK’s sandbox. It is fatuous to call it cheating. It is good smart business sense.

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