According to the Luzme ebook blog (and on an official EU website), European web retailers are going to have to change how they collect VAT for electronic services (this includes ebooks) sold to EU customers. The retailer is now going to have to charge customers based on where the customer lives, and not where the retailer operates.
That is going to make things more complicated for a lot of small businesses by requiring that they track and collect numerous tax rates, but it is also going to eliminate one of Amazon’s advantages in the European ebook markets.
As you probably know, Amazon has been running their EU ebook operations out of Luxembourg so they could take advantage of the low tax rate that the Grand Duchy collected on ebooks and digital services. Luxembourg only collects a 3% VAT on digital services like ebooks – far less that the 15% to 20% tax rate found in most EU member countries. This tax rate is in fact low enough that it has been described as illegal under EU regulations, though I don’t know that any action has been taken against Luxembourg.
Amazon has been taking advantage of that tax loophole for a couple years now, and so have a number of other companies including Kobo, Apple, Google Play, Bilbary, etc. If the new rules take effect then they all will lose this advantage in another 15 months.
TBH I’m not sure Amazon will be impacted all that much; they’ll just pass the costs along to customers. But Amazon’s smaller competitors might feel the weight of extra paperwork. Luzme reflected on this, and they raised several good points:
And at the end of the VAT quarter, do we pay those amounts separately to each countries’ equivalent of our HMRC? Or pay it just to the UK HMRC? Who knows? Apparently, full guidance on this hasn’t been issued yet. Which makes it rather hard to implement…
What madness is this! Wasn’t the point of the EU to make it easier to do business with each other? not more complicated?
In which case, why have they decided to make it so much easier for a non-EU company to sell into the EU market; than for someone to do it from within?