Amazon Accused Over Ebook VAT Tax Loophole
Amazon has been accused of taking advantage of a European tax anomaly to make extra profit on ebooks sold in the UK.
The online retailer moved its European headquarters to Luxembourg in 2006, meaning it pays only 3% VAT on digital books sold to British readers, The Guardian said.
But, according to a contract seen by the newspaper, Amazon starts negotiations with its publishers on the basis that the UK VAT rate of 20% is knocked off the cost price.
The difference sees the company make an extra £1.38 of profit every time it sells a £10 ebook in this country, the Guardian claimed.
It goes on to say Amazon negotiates further discounts, sometimes resulting in publishers receiving less than 10% of the total sale price of a book.
The company, which makes ereaders including the Kindle Fire, dominates the ebook market, selling nine out of 10 ebooks sold in the UK, according to some estimates.
Accountant Richard Murphy, who founded the Tax Justice Network, said Luxembourg's 3% tax rate on ebooks is being taken advantage of by Amazon.
"Luxembourg has this low VAT level to make publishing more accessible - and although Amazon is exploiting this, it is not passing it on to the industry," he told Sky News.
"The time has come for an inquiry into whether Amazon is abusing its market position.
"And whether its commercial power is having a detrimental effect on the publishing industry."
But Mr Murphy also highlighted the discrepancy between the UK's tax rate on print books - which is 0% - and the 20% for ebooks.
"The Government needs to looks into this - ebooks should be subject to the same zero tax rate as print books in the UK," he added.
Amazon responded: "Our goal is to make it easy for readers to discover and read the books they love by expanding access to millions of books in both digital and print.
"We've been able to do this by focusing on innovation, as exemplified by Kindle, and by offering customers the widest selection at the best possible prices and service.
"This innovation and service have not only benefited readers, but authors, too."
Earlier in the year, The Guardian said Amazon generated UK sales over the past three years of between £7.6bn and £10.3bn, but paid virtually no corporation tax.
It follows a report in The Sunday Times that eBay paid just over £1m in corporation tax in Britain, despite generating sales of almost £800m in a year.
In a Sky News interview last week, Starbucks' UK managing director defended his company's tax arrangements.
The company paid no corporation tax for the past three years, despite sales of £1.2bn in the UK.