/ Shopping, Technology

Is Amazon’s avoidance taxing the UK’s ebook retailers?

I do love a good bargain, and Amazon’s cheap products lend the site massive appeal. But when do low prices become predatory, and at what point will the world’s biggest online retailer be considered a monopoly?

Take ebooks. For several reasons, the seductive pricing on Amazon’s Kindle store seems a bit unfair.

The company leads the market with a reported 90% share, but its prices are so low that few other ebook retailers can compete.

The vast range of products on Amazon gives it a unique position: it can run at a loss that’s recouped across other parts of its business. It makes even more sense to do this with ebooks…

Sticking to Amazon’s ebooks

The Kindle runs on Amazon’s own proprietary format, so you’re locked in to Amazon’s content and can only buy your ebooks from its store. But if you’re getting ebooks from the cheapest store around, who would be put off from buying a Kindle? No one I know.

In fact, the low prices might encourage you to shop in other areas of Amazon.co.uk, so losses could almost be written off as a marketing expense. One way or another, once you’ve bought a Kindle, you’re pretty much an Amazon customer for life.

There’s no evidence that Amazon’s using a predatory pricing model, which would be illegal under competition laws. For this you’d need to prove that Amazon is setting prices low to squeeze out competition before hiking them up again once we have nowhere else to shop.

The tax dodge?

But one card Amazon does appear to be playing relates to tax avoidance.

Your everyday hardbacks and paperbacks are tax-exempt, but (despite a 5,000-strong petition calling for the government to treat ebooks in the same way) electronic versions carry 20% VAT in the UK.

In 2006 Amazon transferred ownership of its UK business to a company based in Luxembourg (Amazon EU Sarl), meaning that only Luxembourg’s 3% tax rate would apply to its ebook sales.

On top of that, Amazon has apparently avoided paying the UK’s 28% corporation tax on the £3.3bn-£4.6b it generated in UK sales last financial year. The Bookseller reports that Amazon is being investigated by the HM Revenue & Customs, but that could be anything from a routine audit to something more serious regarding corporation tax.

The EU has already conceded that technological advances shouldn’t stand in the way of similar goods and services being subject to the same rate of VAT. At the moment ebooks are taxed as a service rather than a product, so Amazon can charge at the (Luxembourg-based) supplier’s rate rather than the (UK-based) buyer’s. This is, however, set to change in 2015.

The end of high street book shops?

But will 2015 be too late? As a result of Amazon’s tax strategy, which sees operations taking place in Luxembourg and leaves the UK arm as a mere fulfilment company, there’s no way a UK-based company can compete on price alone.

So where does that leave smaller UK publishers and booksellers? Amazon’s storming the ebook market and bookshops have no other product areas for shelter.

The danger is that they’ll go bust and leave the high street a very different place – with far less consumer choice and fewer new authors encouraged to write for what amounts to a pittance from global giants like Amazon.

Comments
Member

A multi-national avoiding UK tax laws?

For taxpayers, this is the problem with “Globalisation”, but not for multi-nationals who just shift production to where tax levels are satisfactory to them. Just ask Tesco and Vodafone how much they have been let off in tax bills recently. Do you really think that HMRC will force Amazon to pay up?

So they get off paying huge sums (billions) in taxes whilst the rest of the country loses their jobs and suffers cuts across the board.

What a wonderfully fair society we live in…. 🙂

Member

The answer to Amazon’s near monopoly is for consumers not to give them their money.

As consumers, if we disapprove of a firm, vote with your feet – loss of custom is the only vote they understand.

Member

I see the US are challenging the other publishers on the legality of their “fixed” e-book prices. This “publisher minimum price system” was an attempt to prevent Amazon , ir anyone else, forcing out the competition by low pricing.

While low ebook prices is good for consumers at present; lack of competition in the future will be bad for consumers and with Amazon being a book seller and a potential large scale publisher a monopoly is not far round the corner.

Member

Thanks for your comments on this. The US Department of Justice has sued Apple, along with publishers Hachette, HarperCollins, Macmillan, Simon & Schuster and Penguin, for alleged price fixing in the ebooks market.

Apple, Macmillan and Penguin will fight the case in court; the others have agreed to settle.

Allegedly, replacing the wholesale model with an ‘agency’ version secured Apple a 30% cut of its ebooks sales, while a ‘favoured nation’ clause prevented cheaper prices elsewhere (e.g. on Amazon).

For more on this, have a look at our news story: http://www.which.co.uk/news/2012/04/apple-sued-for-ebook-price-fixing-in-usa-283461/

Member
EmW says:
13 April 2012

Thank goodness Which? has started to speak against this. Amazon are not alone but they are very high profile and have a huge influence.
Monopolies and near monopolies are never in the interest of consumers and Which? should be standing against them.
To say that Amazon UK is only a fulfilment company is playing with words. I have decided to stop using Amazon until they start acting like good corporate citizens.
If HMRC won’t address this, the onl;y thing that will is the action of customers. Somehow I fear it won’t happen.

Member

The huge rise in internet sales with many businesses only selling on the internet is highlighting the inadequacies in tax systems, regulation and anti-fraud measures.to deal with the globalisation and “virtual locations”.

Not only can organisations minimise tax by moving their virtual location, but the ability of localised Trading Standards, regional police forces etc to deal with complaints against companies who can move localities whenever they want by just changing a PO Box number or the registered company address.

Member

I can only say that I benefit from using Amazon – I don’t benefit from using the other companies. So I will continue to use Amazon. I consider it a refund on my exorbitant taxes.

Member
Benjohn Barnes says:
3 December 2012

I believe you’re taking a very restricted view point that greatly limits your personal options for getting a lower price.

First, if you feel your tax bill is high, a reason is because Amazon, and many other companies, are paying very much less in corporation tax than they have in the past. The government needs to get to raise money from somewhere. Whether you think it should be spending lots of money or just a little money, any money it does spends has to go in to the coffers. If companies pay less, the rest of us need to pay more.

Second, if Amazon didn’t have the artificial advantage of not paying tax, it couldn’t have almost entirely out competed other sellers and their would be more choice as a result. Choice and competition drive prices down.

So, by all means, go ahead and continue to buy from Amazon. But if you believe you’re not damaging your own direct interests (and everyone else’s too), you’re wrong.