Amazon falls foul of the European Commission...

29 October 2012

amazon logoWe’ve heard a lot about naughty tax avoiders in the past few days, but some good bad news from the EU means that some sneaky operators will end up paying some more tax. Let’s just hope that doesn’t mean we all end up paying more for the digital services we currently enjoy.

As we mentioned last week, Amazon’s name has been bandied about in the recent chit chat about tax avoidance, as their European base in is Luxembourg, a tiny country filled with multinational corporations who only charge 3% VAT on digital services, which includes ebooks and digital downloads. Amazon.co.uk have been accused of negotiating prices with suppliers based on the 20% UK VAT charge, even though they are only paying 3%, pocketing the other 17% in additional profit. This isn’t actually tax avoidance, it is just using hugely massive retail muscle to bully smaller suppliers, while moving to a different country that just happens to have a lower tax rate.

Now the European Commission has decided that this just isn’t on. Of course, they have no sway over Amazon (or Netflix or Skype), but they do have the power to reprimand European countries who do not toe the party line. Luxembourg, along with France who have a 7% digital services VAT rate, have been given 30 days to address their too-low rate and increase it to at least 15% or face the consequences. Said consequences include referral to the European Court of Justice and possible fines. Very scary indeed.

But why are Brussels getting involved? The whole point of the EU is that it is a trading community and all us lovely cultured Europeans work together and get on smashingly. However, if you are Luxembourg, and you decide to drop your VAT rate to 3%, all of a sudden you get a rush of ginormous multinational companies deciding to come and learn Luxembourgish* and pay millions of Euros in VAT to the Luxembourg authorities. 3% of an awful lot is much better for Luxembourg than 20% of nothing. Hence why the French decided to follow suit.

Of course, this kind of behaviour just isn’t cricket, as it is drawing these big businesses with their big VAT liabilities away from European neighbours who might otherwise have benefitted from all that lovely VAT cash. Being proper and upstanding sorts, that is why we in the UK have retained our 20% rate on digital services, despite calls to reduce it given the 0% rate that applies to printed books in the UK. Although strictly speaking, the UK zero rate on certain goods is also contrary to EU law.

The Guardian reports that “Amazon is expected to contest the commission ruling”, which is impressive given that Amazon is not actually a European country (despite an attempt at world domination), but the point is that we shouldn’t expect an increase in ebook prices just yet.

However, if Luxembourg (and other breakaway countries) do comply, this will restore equilibrium to the price of ebooks so that other suppliers are not at a disadvantage in the ebook market. Other than the fact that Amazon already controls 90% of said market, naturally. And if Amazon’s shareholders are suddenly going to be several million out of pocket, which currently works out at an extra £1.38 per £10 ebook, you can bet those losses will be recouped somewhere.

*this is an actual language. Not really spoken outside Luxembourg though.

TOPICS:   World News   Economy   Technology

6 comments

  • Kelmer
    Wasn't VAT supposed to be a temporary tax anyway?
  • Badger
    They'll just move their "headquarters" to Switzerland, like Boots.
  • shiftynifty
    Vhat is this vat?....in a german accent of course
  • Mustapha S.
    As if the French will take it. So much as think about the possibility about potentially increasing petrol costs at some indetermined point in the distant future and the garlic munchers will start rioting, setting fire to sheep etc. Good on them. If if was the EU telling the UK we needed to increase VAT to 30%, they'd give in in a heart beat.
  • DragonChris
    " The whole point of the EU is that it is a trading community and all us lovely cultured Europeans work together and get on smashingly. However, if you are Luxembourg, and you decide to drop your VAT rate to 3%, all of a sudden you get a rush of ginormous multinational companies deciding to come and learn Luxembourgish* and pay millions of Euros in VAT to the Luxembourg authorities. 3% of an awful lot is much better for Luxembourg than 20% of nothing. Hence why the French decided to follow suit." So why doesn't the UK drop their tax rate? Oh right, I forgot, the profit... Greed once again prevailing. The sooner the EU is disbanded the better, then everyone can have their own currencies, tax rates and what not again.
  • EC a.
    [...] EC tells Euro rebels: Hike up your ebook tax to 15%, or elseRegister"The EU is seeking to correct the ebook anomaly by making Luxembourg increase its VAT rate on ebooks. This will help other ebook suppliers in the UK by removing the benefit in routing sales via Luxembourg but it does nothing to address the bigger …HMRC taken to European court over ebook VATCITY A.M.Amazon falls foul of the European Commission…Bitterwallet [...]

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