Online bookseller Amazon has been making a killing from its luckless British customers by forcing them to pay 20 percent VAT on ebook sales. However, the outfit only has to pay three percent VAT and it is pocketing the difference.
According to the Guardian, the Luxembourg-based company profits from a European tax anomaly where it only has to pay three percent for sales of ebooks. Regardles, it is forcing British publishers to cover the cost of a 20 percent VAT charge on ebook sales and trousering the extra.
Publishers are too terrified to do anything about it because Amazon might turn nasty and stop selling their products, the Guardian said.
Companies such as Amazon collect the VAT levy from consumers before passing it on to governments. In the case of Amazon's UK ebook sales, it only has to pass three percent to Luxembourg. If it was based in the UK it would have to hand over 20 percent.
Amazon starts negotiations with its publishers on the basis that the UK VAT rate of 20 percent must be knocked off the cost price. This gives it £1.38 of profit every time it sells a £10 ebook in rip-off Britain.
It negotiates further substantial discounts on top of the VAT subsidy, which, in some cases, can result in publishers receiving less than 10 percent of the price paid by the online customer.
One senior publishing executive said Amazon was not nice to deal with as it has no compunction in shutting down the buy button on their site on titles if any publisher steps out of line.
In one case Amazon allegedly sought a deal that would have resulted in a 92 percent 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. The author would have received about 3p per book at that rate.
Amazon bars the publisher from offering a better deal to a rival retailer without automatically giving the same discount to Amazon.
Security and Exchange Commission filings show that in the past three years, Amazon generated sales of more than £7.6 billion in the UK without attracting any corporation tax on the profits. Nice little earner if you can get it.