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Tuesday, October 30, 2012

Amazon Stealing Cash from UK Citizens

Online seller Amazon has been making profits from its UK customers by making them pay 20% VAT on electronic book sales, while the seller has to pay only 3% VAT. The difference is simply pocketed by Amazon.

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Newspapers claim that the Luxembourg-based bookseller is making money from a European tax anomaly, trousering the difference between what it forces customers to pay and what it really pays itself.

Although the publishers know about this, they are too afraid of doing anything, because the service might stop selling their products. Entities like Amazon are supposed to collect the VAT levy from their consumers before passing it on to the government. In our case, Amazon only has to pass 3% from ebook sales to Luxembourg government, but if it was based in the United Kingdom it would have to pass 20%.

The online book seller is starting negotiations with its publishers on the basis that the British VAT rate of 20% must be knocked off the cost price, which gives it profit of 13.8% from ebook price in the rip-off UK. The company is negotiating further discounts on top of the VAT subsidy. However, these might result in publishers receiving less than 10% of what the online customer actually paid.

Of course, the publishers are not happy about that. One of the senior publishing executives admitted that the online service was not nice to deal with. The matter is that Amazon could easily shut down the buy button on their portal on titles of any publisher who would step out of line.

Actually, in one case the company went as far as to seek a deal which would have resulted in a 92% discount. The addressed publisher refused the terms, because they would have received only 80p on an ebook selling for £10 on the seller’s British website. Of those 80p, the author would have received only 3p per each sold copy at that rate. In the meantime, Amazon bars the publisher from offering a more profitable deal to another retailer if they don’t provide the same discount to Amazon.

According to Security and Exchange Commission, the statistics say that within the past 3 years, the online retailer has generated sales of over £7.6 billion in the United Kingdom, but didn’t attract any corporation tax on these profits. This, as you can understand, is just another source of profit for the company.

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