Amazon 'charging publishers 20% for e-book VAT'

Amazon is forcing publishers to start negotiations over e-book prices exclusive of the full 20% VAT charge on e-books despite the true cost to Amazon being only 3%, according to a report in the Guardian.

The newspaper said that it had seen a contract demonstrating that Amazon starts  negotiations with publishers on the basis that the UK VAT rate of 20% must be knocked off the cost price of titles, even though it only has to pay 3% VAT on digital books sold to UK readers because of tax anomalies related to its base in Luxembourg. Amazon thus gains an extra £1.38 of profit every time it sells a £10 e-book in the UK.

The contract also bars the publisher from offering a better deal to a rival retailer without automatically giving the same discount to Amazon, the Guardian said.

The newspaper cited an unnamed publisher as refusing a deal with Amazon which would have resulted in a 92% discount, with the publisher receiving 80p on an e-book selling for £10 on Amazon.co.uk. It also said senior publishing executives complained that Amazon "are not pleasant people to do business with".

Amazon's quoted response was: "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."

Earlier this year, an investigation published in the Bookseller revealed that Amazon's transfer of its UK business to a Luxembourg-based company in 2006 may have saved the retailer up to £20m in cash.