/ 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.


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…. 🙂

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.

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.

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.

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.

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.

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.

Polterry says:
14 April 2012

Your statement
“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.” is nonsense.
There are various free applications which will convert an ebook from one file format to another e.g. Mobipocket Creator (mobipocket.com) and ABC Amber LIT Converter

As more people switch to ebooks the end of the High St. bookshop is inevitable. You do not mention the cozy arrangements of book publishers which have kept the price of books too high for years. Books are about to follow the same path the music industry and it is apparent that publishers are taking a similiar Luddite attitude and not adapting their business models to the realities of today’s world.

Amazon is a business and complies with the current rules / enviroment. Are they the only company to operate such a scheme or are they just a bit smarter than the pack?

Benjohn Barnes says:
3 December 2012

Your last point, “Amazon is a business and complies with the current rules / enviroment. Are they the only company to operate such a scheme or are they just a bit smarter than the pack?” is only sort of true.

The “rules” of international tax are more guidelines: they require reasonable interpretation on a case by case basis. They require active monitoring by authorities, updates to legal frameworks, and much better information flow between tax jurisdictions. What they’ve had is a blind eye turned to them, hence the current situation. These businesses are doing something wrong and abusive, but they should have been stopped by the relevant authorities, so you can decide yourself who’s at fault.

To put aside “fairness”, as a consumer, I am alarmed about this because it gives Amazon (and other larger international businesses) an extremely artificial advantage over smaller competitors. Our current lax tax regime is actively encouraging monopolies by giving a big competitive advantage to large companies, and denying this to small competitors. Monopolies are terrible for consumers, limiting choice and competition, and allowing unchallenged price increases. This is a bad thing for us as consumers.

Basically I don’t care what Amazon or anybody else is doing, I’ll go with whoever comes up with the right product at the right price with a smidgeon of a decent service thrown in, if I can get e-books cheaper through Amazon than that’s where I’ll get ’em.
However, that is not to say that I have given up entirely on physical books, hardbacks or paperbacks as my groaning bookshelves will attest to.

Benjohn Barnes says:
3 December 2012

I’ve replied to a similar comment above. I don’t think this approach is really in your best interests, even if it seems to be.

The current situation is very damaging to competition and artificially encourages monopolies, which puts prices up and limits choice.

It’s very much in your interests (selfish, or otherwise) to not permit this to happen.

I must be one of the few who have been put off buying a Kindle due to the fact that it is an effort to use it with anything other than Amazon purchases. I am disappointed to see that this tie-in hasn’t prevented Which? from making the Kindle a best buy.

Ironically I had been using the Book Depository for both paper and eBooks, in order to avoid Amazon! Now the Book Depository is part of Amazon I shall be using the Blackwell’s and Foyles online stores.

Polterry says:
25 November 2012

It is a bit late to continue this subject but further to Katie’s response to my comment of the 16th April

1. Amazon have a propriety system for the kindle. Well what about Apple and other companies? In the computer world there was DOS and other systems for a long period. Then there was Windows and Apple. If a company believes enough in its product it will invest and try to capture a large part of the total market.
1a. Look at the tablet world now – Apple dominating, Android playing catchup and Microsoft trying to stay in the game. Similiar set-up with mobile phones.
2. If there are conversion programs availabe from one system to another then great for consumer. He has the chance to choose one and then convert from another.
3. If there are no conversion programmes then the consumer must make a choice as to which system to support. Remember VHS and Betamax? The latter was actually technically the better system but lost out to the former.
4. I have owned a Kindle for several years now and have content that originated from other formats such as Word and PDF.
5. My Kindle reads PDF but scaling often makes reading inconvenient so I tend to convert. Incidently Amazon offer a free conversion service for Word files amongst others.
6. The comment about moving to another format is the same as moving from Windows to Apple. A person would think long and hard before doing so.
7. The monopoly laws in most western countries will probably prevent an outright monoply.
8. We do not live in a perfect world and Crazytrucker reflects fairly accurately today’s consumer.

Do you not think it fairer to compare eBook formats with the MP3 format? Whatever mechanism people use to download or generate MP3 files, they expect to be able to play them on any device that advertises itself as capable of playing music, whoever manufactured it and no matter what proprietary operating system runs on it.

Perhaps eBook reader manufacturers should be competing on the capabilities of their devices to provide a great reading experience, not over what eBook formats they support. File format support should not really give competitive edge, any more than support for particular network protocols.

Polterry says:
3 December 2012

Is it fairer to to compare eBook formats with the MP3 format? Yes and no. MP3 dominates the digital music world regarding volume in the same way that Amazon’s Kindle dominates ebooks. However there are other music formats available, some of which provide much better quality than MP3 i.e. same scenario as ebooks. The consumer has a choice as to which one to use and again there are conversion programmes to change from one format to another.
I think the file format is only a small part of the debate / problem. We do not live in a perfect world and as long as I have choices I will make the one which suits me best. It would be nice if everything was Utopian but it is not.

I’ve just been given an Amazon Kindle Paperwhite as a retirement leaving gift. Personally I have given up using Amazon because I feel very strongly about the Amazon avoidance of tax in the UK, but couldn’t turn the gift down because people would have been very offended or hurt.

I’m trying to work out how I can use the Paperwhite without buying from Amazon. I’ve found some information – particularly about Calibre, but my (lack of) technical knowledge has meant that I didn’t totally understand what to do.

Can someone point me to somewhere I can find out about this that isn’t particularly techie – a dummy’s or idiot’s guide perhaps?! Thank you.