UK publishers required to pay 20% VAT on eBook sales by Amazon

It has been discovered that Amazon requires British publishers to cover a 20 per cent VAT charge on all eBook sales, yet the online retailer profits from a European tax anomaly and is only required to pay 3 per cent VAT, according to a report by the Guardian.

The article refers to a contractual stipulation which necessitates publishers to begin negotiations with the online retailer at an already fixed price point; and the aforementioned 20 per cent VAT must be accounted for.

However, the company is exempt from this VAT charge due to its European base of operations being located in Luxembourg, and it is therefore only required to pay a rate of three per cent (the domestic rate of taxation).

Amazon is estimated to gain a profit of £1.38 off a £10 eBook sale and it sometimes charges 65 per cent (VAT included) by way of discounts.

The contract also prohibits publishers from offering better deals to competitors stating, “If the base price exceeds the base price … provided to a similar service then … the base price hereunder will be deemed to be equal to such lower price, effective as of the date such lower price comes into effect."

The Guardian article went on to cite an unnamed publisher who refused a deal with Amazon as the deal would have resulted in a 92 per cent discount, that equates to a sales return of 80p for £10 ebook.

Amazon responded to the article by saying, “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."

The Bookseller has previously shown findings from Security and Exchange Commission filings that show Amazon has accomplished sales of more than £7.6 billion in the UK over the last three years.