Amazon is forcing British publishers to cover the cost of a 20% VAT charge on ebook sales – even though the true VAT cost to the online retailer is only a fraction of that amount under its generous Luxembourg-based tax regime.
It then negotiates further substantial discounts on top of the VAT subsidy, which in some cases can result in publishers receiving less than 10% of the price paid by the online customer.
For those who don't know, VAT is a type of sales tax which is bundled into the retail price for a lot of products sold in Europe (and many other parts of the world). It's added before you see the price on the screen not after (like in the US). The various countries in Europe charge different VAT rates and companies who sell online are only obligated to collect for the country they operate from. So rather than pay the UK 20% of the ebooks they sell, Amazon instead pays Luxembourg 3%.
The accusation is that Amazon is making UK publishers pay 20% while only passing on 3% to Luxembourg. Sounds like evil Amazon is cheating their suppliers again, right?
I'm not so sure.
The one big problem with this story is that Amazon's KDP says that they charge 3% VAT. That is clearly spelled out in several places, including the Term & Conditions, the actual contract you agree to, where it specifically says that Amazon collects the 3% VAT for Luxembourg.
While Amazon has mistreated their suppliers in the past (the POD blackmailing and M-Edge lawsuit comes to mind), I would still put money on The Guardian having gotten their hands on an old contract (or not doing their due diligence). I don't see how Amazon could convince UK publishers to accept such a tiny payout when they could submit their ebooks via KDP and earn so much more.
There's something we're not seeing here. If any publisher wishes to explain the background, I'm always willing to listen - off the record, even.
Would anyone care to place bets on what really is going on?