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3 Alternate Explanations for Why Amazon is Forcing UK Publishers to Pay Unnecessary Tax

There’s a hot story going around today about Amazon and how they might be forcing publishers to pay a UK tax rate in the contract which Amazon then doesn’t pass along to the UK government.

When I reported on this last night I expressed a general disbelief in the story because it did not match up with what public info I could find concerning Amazon KDP, its contract terms, and the amount of taxes collected. There was a context and subtext to this story which The Guardian missed and I didn’t know, so I invited readers to post alternate explanations for why Amazon might be forcing UK publishers to sign such a bad deal.

A couple readers, including Baldur Bjarnason and Tim Gray, posted their speculation. There is at least one explanation here which strike me as being more plausible than Amazon simply being evil.

1. Amazon wants publishers to use KDP and not sign deal directly with Amazon. This is something I had heard before from a couple different source:

Amazon wants to drive as many small to medium-sized publishers to KDP. Because KDP is self-serve, low maintenance, and clearly suffering from severe under-investment, it probably makes financial sense for Amazon to funnel all ebook sales through KDP. Hence crap contracts.

2. Amazon might be specifying the tax rate which UK publishers were already obliged to pay:

Or, given that these weren’t agency contracts, Amazon isn’t operating as an agent. As in, they aren’t collecting 3% VAT on behalf of the UK publishers. What it is doing is performing as a Luxembourg vendor collecting 3% VAT when it sells and ebook. Then when it is paying its supplier revenue for licensing the rights to an ebook it is operating as a UK licensee paying UK VAT on digital services. If the payout is made from its UK subsidiary there’s a good chance they have to charge 20% VAT for digital services. They might not have any choice. (I am not a tax lawyer, this is just speculation.)

If anyone has any info on whether this is incorrect, please leave a comment.

3. Amazon might be the victim of a misconception that big companies are getting away with questionable tax loopholes while the UK gov’t. is forcing people to pay their taxes. Given that The Guardian had previously reported on Amazon skirting UK tax laws, it is not out of the question.

It’s likely that part of the context for this is the ongoing programmes of “austerity” in various countries. Here in the UK there’s a widespread perception that the government is making the people pay while giving wealthy individuals and large businesses an easy ride. Amazon’s name had certainly come up as avoiding tax on its UK business by being registered in Luxembourg (let me stick a big “allegedly” on that to be safe). So the media are primed to pounce on any suggestion of wrongdoing.

So what do you think?

I find the argument that Amazon wants publishers to use KDP to be quite plausible.KDP automates the entire process of selling ebooks in the Kindle Store, and that cuts Amazon’s costs. I could easily see that they’d bully publishers into using it.

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Jane October 22, 2012 um 1:44 pm

I know some small publishers like Entangled and a couple of others are using this to great benefit. I think it is because the prices of their books are already low so Amazon doesn’t have incentive to discount them. I looked into the KDP contract.

The for publishers are a) they can reprice the book at any time and b) include it in their lending library and c) under the price matching clause, if other places discount your book, Amazon gets to as well and then you only get 70% off the discounted price. So if Kobo or Apple discounts the book to 1.99 then you get only 70% of 1.99 at Amazon.

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