Amazon changes KDP terms in response to upcoming changes in EU tax laws
Tax laws in the European Union will be changing on 1 January 2015, requiring retailers to collect VAT based on where their customer is located. Many retailers are still working to comply with the new law, and yesterday Amazon revealed how they were changing their operations.
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.
images by EU Naval Force Media, liewcf
puzzled December 2, 2014 um 2:49 pm
Does anyone else see a future where the EU 'makes it easier' for VAT compliance by introducing a single European wide VAT regime and taking over the national regimes?
fjtorres December 2, 2014 um 3:52 pm
I’ve seen speculation that that is the intent of this law: create enough chaos to prep things for a unified taxing regime.
TheSFReader December 3, 2014 um 11:26 am
operative words here "taking over the national regimes"… We’re not there yet. And probably not for a long time.
fjtorres December 2, 2014 um 3:50 pm
Part of the problem is that the vendor has to identify where the customer is located *before* the place the order, so as to present the right vat-inclusive price. For Amazon, with its history of on-the-fly price adjustments, this is easy. For smaller retailers it will be tricky. For very small businesses working off a barebones website it would require signing up with a bigger outfit (like, ahem, Amazon) to do it for them (leading to higher prices or lower profit) or simply stop selling direct.
The intent might have been to hamper big players like Amazon and Apple but what they’re doing is clearing the online retail space for Amazon, Rakuten, and other B2B marketplaces and clobbering small businesses and consumers.
Fbone December 2, 2014 um 6:06 pm
Well, all businesses had 5 years to plan for such an eventuality. They knew over a year ago what the exact terms would be and how it would affect them.
While I understand their frustration, it’s not like all this suddenly appeared. They were given sufficient time to plan ahead.
Nate Hoffelder December 2, 2014 um 6:28 pm
This is true.
Ebook Bargains UK December 3, 2014 um 5:02 am
About time. Amazon handling the VAT-inclusive list price, that is.
This will tidy up a lot of straggly prices on the European sites, for those who set their price direct. List at 3,99 euros and it will appear at 3,99 euros.
But for those taking the lazy option and letting Amazon set prices against the US list price they will continue to suffer the consequences, in the form of a very unprofessional-looking product page.
All Apple prices end in 9. US $0,99, EUR 3,49, £0.49 GBP, AU $3.99,etc. Neat, tidy and professional.
On the Amazon sites that 99c list price often comes out at AU 1.13 or CDN $1.11, and that difference increases as the list price does.
A US $4.99 title will often appear on Kindle AU at around the AU$5.40 mark. pushing the list price over the psychological ceiling the author intended to set.
Poorly-set list prices are often the easiest way to identify indie titles, and makes one wonder if the same lack of care has gone into their actual writing.
puzzled December 3, 2014 um 6:03 am
First off, Walmart is a champion of unruly prices, and they seem to be doing ok.
Secondly, the AU price is going to have two factors changing the carefully psychologically perfect price set: the exchange rate (currently 18% more) and the GST (10%), which means that the AU$ price is going to be at least 30% more than then US price.
Thirdly, Australians are very experienced at understanding the difference in pricing in different currencies.
Fourthly, we (by we, I mean Australians) would love it if the author would price this book at AU$4.99. Maybe the authors should agitate Amazon to be able to set different prices in different countries.
Michael W. Perry December 3, 2014 um 9:59 am
Amazon is doing one thing for publishers and authors in this mess. They won’t have to go back and adjust the prices of their existing titles. Amazon is doing that for them in a default fashion. It’s only new titles that will require this pesky additional step.
Keep in mind why European governments want their VAT buried in the retail price rather than added afterward like the American sales tax. That conceals from the European public just how much they’re paying in taxes. You can see one result in the tax rates. In the U.S., sales taxes stay under 10%. In Europe VATs are typically above 20%.
European VAT are, in fact, so high, that they’re often evaded, particularly when no exchange of goods takes place. A friend in France went to rent a rototiller and found there were two prices. If he paid in cash and didn’t want a receipt, he paid 20% less than if he paid by check. The former meant that not only was the VAT not being paid, but income taxes by the owner. And with that cash, the owner may have paid some of his workers in cash, meaning they didn’t have to pay income tax either.
Because they’re so high, VATs drive much of the economy underground. And that means that the taxes on goods that can’t evade a VAT (such as groceries) have to be even higher. It’s yet another illustration that, for all the ills of the U.S., we’re still much better run than Europe. We make our taxes visible. They don’t.
For authors wherever they live, these VATs are bad news. It means that due to those significantly higher VAT-included prices many European readers will think that they’re being charged more than Americans for the same ebook even though the author and publisher aren’t getting a penny more money.
The clumsiness of Amazon’s fixed-category (X.99) pricing may make that worse. If your ebook’s price, translated into Euros and with that VAT, turns out to be around X.49 and Amazon is insisting on a X.99 price, are you going to round up or down? Most publishers and authors, I suspect, round up. The result could be that some 50 cents in VAT means an ebook has to cost about a dollar more. That’s not good.
Amazon could improve this situation by allowing more X.49 pricing. That’d be particular helpful at lower prices where being forced to raise the price by a full Euro may make a big difference in sales.
puzzled December 3, 2014 um 3:51 pm
We have a 10% GST in Australia (it’s like a VAT). It’s on pretty much everything except for unprocessed food. As compensation, they dropped the income tax rates.
So, we know exactly how much tax we’re paying.
And, from Ebook Bargains UK’s comment, I thought it was Apple that was insisting on the tidy .x9 pricing, not Amazon.
As a side issue, due to sales tax in the US, you don’t know how much stuff will actually cost. That $4.99 book is actually costing you $5.41. This is a lot less transparent.
Kim Jensen December 16, 2014 um 6:10 am
"Keep in mind why European governments want their VAT buried in the retail price rather than added afterward like the American sales tax. That conceals from the European public just how much they’re paying in taxes. You can see one result in the tax rates. In the U.S., sales taxes stay under 10%. In Europe VATs are typically above 20%."
Sorry to say this, but what a bunch of bull. You clearly have no understanding of how the system works in the EU. We are WELL aware of how much we are paying in VAT. Every receipt we get clearly states how much of the total price is VAT so it is not hidden from the public. Unlike in the US you can tell exactly how much you have to pay for a product without knowing what the VAT is and honestly I’d say that makes it a lot easier to go shopping. If the price is right then the VAT rate doesn’t really matter, but I will still get informed about it when I buy something.
The reasons the VAT rates are higher than in the US is a different question altogether and varies from country to county so I won’t even try to get into that.
I. M. Confused December 3, 2014 um 7:46 pm
I don’t understand taxes in Europe or how the E.U. works except there is always a question of jurisdiction.
How can a government require somebody outside their jurisdiction to pay them taxes? Can G.B. make somebody in Germany pay taxes? Can New York make somebody in California pay taxes? Can Canada make somebody in California pay taxes? They wish.
Within a government’s own jurisdiction they can make anybody pay any taxes until everybody moves away. They are just trying to figure out how to make everybody else pay taxes also. They have always tried to do that and won’t learn they are playing outside their game. I don’t understand those taxes.
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