The retailer announced yesterday that they were changing the terms of KDP to reflect the new tax laws. Rather than let authors and publishers set a price which Amazon would then add the applicable VAT, under the new system authors are required to set a price which includes the local VAT.
Starting January 1st, to make it easier to set customer friendly list prices without having to calculate VAT for each country, authors will set list prices for EU marketplaces that include VAT. To accommodate this, the KDP pricing page will be updated to accept VAT-inclusive list prices. Previously, if an author wanted to provide a suggested list price of "£1.99", he would have to set "£1.93" as the VAT-exclusive list price to account for the 3% VAT we would have applied. Now, authors can simply enter "£1.99" and we will deduct the applicable VAT to calculate royalties. In the pricing grid, authors will also see their estimated price without VAT displayed for each marketplace to help them understand how royalties will be calculated for sales to customers from that primary country.
For those authors who set their EU marketplace prices automatically from their US list price, we will convert the US list price to local currency and that will be the list price that includes VAT. For example, if an author sets the US list price to be $10.00, then we will convert that price to Euros for the Amazon.de marketplace, and assuming the exchange rate is 0.8, the Amazon.de list price including VAT will be €8.00. For a sale to a German customer, we would deduct 19% VAT and calculate royalty on a VAT-exclusive list price of €6.72.
The new calculations will go into effect at the beginning of 2015.
Originally intended to wipe out the advantage one retailer might have over another based on the EU country they operate from, the new laws are expected to have a painful impact on smaller businesses. While larger tech companies like Google, Apple, and Amazon can afford the infrastructure to track and collect the appropriate VAT, smaller entities like authors and publishers will face greater difficulty.
Authors and publishers who sell direct will now have to identify the EU country for each of their customers and collect the relevant VAT. While that is not an impossible task, it is daunting. Not all payment processing services like Paypal are ready to deal with the change, leaving authors to cope on their own.