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Amazon (NASDAQ:AMZN) charges publishers in Britain a 20 percent value-added tax on ebook sales, despite the fact that the VAT cost to the online retailer is much less.
According to a contract acquired by the Guardian, Amazon begins negotiations with the UK VAT rate of 20 percent knocked off the cost price. The company uses this rate even though its European headquarters are located in Luxembourg, which allows it to benefit from a tax policy that requires Amazon to pay only a 3 percent VAT on digital books sold in Europe. Amazon then charges the difference between the rate imposed on publishers and the tax rate it pays, which according to the Guardian, amounts to an extra £1.38 on every £10 ebook sold.
A publisher signing a contract with Amazon would have to agree to price the book at £8.33 when it would be retailing for £10.
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“The contract seen by the Guardian is couched in legal language that confirms Amazon’s considerable commercial power,” said the publication on Monday. The retailer, which has a 90 percent share in the ebook market, is able to use its monopoly in order to dictate terms with publishers.
Furthermore, Amazon arranges discounts on top of the VAT subsidy, which often result in publishers receiving less than 10 percent of the price paid by the consumer. With the system the company has in place, publishers must give the retailer a discount of £1.38, the cost of the VAT tax, before agreeing to wholesale discounts that can amount to 90 percent.
The contract also prevents publishers from offering better deals to rival retailers, effectively mandating that no other bookseller can undercut Amazon.
Publishers and authors in Britain are beginning to fear these practices will push the industry into further decline. “These are not pleasant people to do business with,” one senior publishing executive said to the Guardian. “They have no compunction in shutting down the buy button on their site on our titles if we step out of line.” The publishers who spoke to the paper did so anonymously to avoid damaging their commercial relationship with Amazon.
After questioning the company, the Guardian reported that Amazon would not “answer specific questions about its market share, contracts with publishers, VAT, and its business practices.” However, the publication did say that none of the retailers arrangements are illegal.
In April, the Guardian noted that Amazon generated sales of £3.3 billion from its UK website last year, but paid no corporate tax on the income. According to Security and Exchange filings, the company generated sales of more than £7.6 billion in the UK in the past three years and has paid no corporate tax on the amount.
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