Amazon accused of using tax loophole

Company charges 20 per cent VAT on ebooks.

Amazon. Photograph: Getty Images

Amazon is charging British publishers to cover 20 per cent VAT costs on ebooks - despite the online giant paying only 3 per cent under its Luxembourg-based tax plan.

According to a report in the Guardian, Amazon starts negotiations with its publishers on the basis that the UK VAT rate of 20 per cent has to be deducted form the cost price.

The online retailer then charges the difference between the UK VAT imposed on publishers and the 3 per cent that it pays, which amounts to an extra £1.38 of profit every time it sells a £10 ebook in Britain.

Amazon collects VAT before passing it on to governments. In the case of Amazon's UK ebook sales, it only has to pass 3 per cent to Luxembourg, rather than the 20 per cent it would pay if it were based in Britain.

The company also negotiates further discounts on top of the VAT subsidy, which results in some publishers receiving less than 10 per cent of the price paid by the customer to the retailer.

It also suggests the retailer – who hold a near monopoly on the British market with nine out of 10 ebooks sold by Amazon – wields its power to pressurise publishers to the demands by threatening to remove all titles from their site.

According to the report, an unnamed publisher who negotiated an ebook deal for a well-known figure, Amazon sought a deal that would have resulted in a 92 per cent discount.

The publisher refused the terms, which would have seen them receive just 80p on an ebook selling for £10 on Amazon's UK website.

Online auction house ebay has also come under attack for its tax payments this weekend, being accused of paying just £1.2m of tax in the UK, despite making profits of £181m.

This story first appeared on economia.