Online retail giant Amazon has started to charge its British publishers a tax rate that is higher than their true VAT cost. Publishers in the UK will have to pay 20 percent VAT on ebook sales despite the fact that the true VAT cost for UK ebook sales will be closer to 3 percent.
Since 2006, Amazon has been based in Luxemburg, where the company has to pass on 3 percent to the government for UK ebook sales. No VAT has been issued on printed books in the country, but the online retailer has already started negotiating with the publishers in the UK on the basis that UK VAT rate of 20 percent must be taken from the cost price.
The difference comes to an extra £1.38 of the profit every time the online retailer will sell an ebook worth £10 in the UK. Further discounts will be negotiated by the company on top of the VAT subsidy. In certain cases it might also be possible that the publishers might get less than 10 percent of the price paid by the online customers.
Founder of the Tax Justice Network Richard Murphy said, Amazon is taking the advantage of Luxemburg’s 3 percent tax rate. Murphy added that Luxemburg has a low VAT level to make publishing more accessible and that Amazon is exploiting it.