Following the introduction of the European Union’s new VAT-MOSS regime, as reported by Chris Meadows, Amazon has now issued details on the implementation of VAT collection for Kindle Direct Publishing, and KDP authors like me have received a lengthy email from the Kindle Direct Publishing Team covering the new regulations. It begins as follows:
On January 1, 2015, European Union (EU) tax laws regarding the taxation of digital products (including eBooks) will change: previously, Value Added Tax (VAT) was applied based on the seller’s country – as of January 1st, VAT will be applied based on the buyer’s country. As a result, starting on January 1st, KDP authors must set list prices to be inclusive of VAT. We will also make a one-time adjustment for existing books published through KDP to move from VAT-exclusive list prices to list prices which include VAT. We’ll put these changes into effect starting January 1st; you may always change your prices at any time, but you do not need to take any action unless you wish to do so.
In other words, it appears that all you KDP authors out there will have to take VAT into account for any future publications, but for existing titles, Amazon will do the work for you – though you may want to tweak the results later to hit an attractive price point. “We will add the applicable VAT based on the primary country of the marketplace to the VAT-exclusive list price provided,” states Amazon. “For example, if an author had previously set £5.00 as the VAT-exclusive list price for amazon.co.uk, the new VAT-inclusive list price will be £6.00 because the applicable VAT rate in the UK is 20%. Please note, if an author had set a consistent VAT-exclusive list price for all Euro based Kindle stores, those prices will now be different due to varying VAT rates for the primary country of each Kindle store.” More details are available online here.
Royalties will remain more consistent, but not on a basis that will give authors much comfort against the changes in their list prices. As Amazon explains, “Royalties will continue to be calculated based on the list price without VAT. The amount of VAT applied depends on the country where the customer is located. Consider a book with a £6.00 VAT-inclusive price on Amazon.co.uk, for sales to customers in the UK we would apply the UK’s 20% VAT rate and the price we use to calculate royalty would be £5.00. The 23% Irish VAT rate will apply to purchases from Ireland, so a customer buying from Ireland would still see £6.00 but, applying the 23% Irish VAT rate, we would calculate royalty based on the VAT-exclusive list price of £4.88.”
As for American authors and in general “for those authors who set their EU marketplace prices automatically from their US list price, we will convert the US list price to local currency and that will be the list price that includes VAT. For example, if an author sets the US list price to be $10.00, then we will convert that price to Euros for the German marketplace, and assuming the exchange rate is 0.8, the Amazon.de list price including VAT will be €8.00. For purchases in Germany, we would deduct 19% VAT and calculate royalty on a VAT-exclusive list price of €6.72.”
“We think that respecting your VAT-exclusive list prices and keeping books in their chosen royalty plans offers the best experience for authors,” Amazon concludes. Well, at least they have the EU regulators to blame if KDP authors disagree.
The odd thing is, the US list price specifically doesn’t include sales tax, the US equivalent of VAT. So you’d think if they were going to be consistent, they’d move it across as the vat-exclusive price, not inclusive.
I believe there is a reason why Amazon cannot be consistent in how it applies sales tax in the U.S. (after the sale is made) versus the EU (included in the sale price).
I recall reading that European countries with VATs no only require that the tax be hidden in the price, they make it illegal for a retailer to even tell customers what that pre-tax would be. Furthermore, there is a reason why U.S. taxes are called sales taxes while those in Europe are called value-added.
* In the U.S., such taxes are only applied to the final sale. A construction firm, for instance, can buy lumber tax-free as long as it applies a sales tax to the final, marked-up price it charges its clients. Items only get taxed once and openly.
* In Europe, a value-added tax is added every time (or perhaps almost every time) ownership is transferred. When a logging company sells to a lumber company, the trees are taxed. When the resulting lumber is sold to a wholesaler, the ‘value-added’ by processing the wood is taxed. When the wholesaler sells to a retailer, another added value is taxed. And finally when that lumber is sold to the public, it is taxed.
Needless to say, the latter makes tracking what taxes are paid far more complicated. It also accomplishes another and, for the politicians, more important purpose. It completely hides from the public how large the taxes they pay are. All they can see is that prices somewhere else, say in the U.S., are much lower. They don’t know why.
Tax visibility in the U.S. is also not accidental. Our sales tax is visible because people have fought to keep in visible to avoid precisely the situation that exists in Europe. It’s also why those who want to make the U.S. into a clone of Europe loathe limited tax groups such as tea party activists. To finance their ever-expanding roll of government, they want to hide its costs as much as possible.
Sales taxes have another advantage. Because they’re only applied at the final point of sale, typically a retail store, they’re far more likely to be collected. All those various transfers that are supposed to be taxed in a VAT system often operated underground, particularly if no physical object is being sold.
I saw that in France when I went with a friend to rent a rototiller. The rental store told him that he could choose either of two prices. Paying in cash and not requiring a receipt was about 20% cheaper than paying by check and insisting on a receipt. The former not only meant that the VAT wasn’t being paid, it meant that the store owner was almost certainly not paying income tax either. And later, should the government investigate, how could it prove the rototiller was or was not used on that day?
One result of all those incentives to cheat is that VAT taxes have to be higher to make up the difference. As you can see from the above numbers, they’re often two or three times our sales taxes even when only that final sale is accounted for. They also distort the marketplace. More money has to be collected in some areas, say retail sales, to make up for all the cheating in difficult to track rental and professional services.
Also a VAT added tax also hurts small, speciality companies and favors large corporations that practice vertical integration. A company that does everything from harvest trees to sell them at retail has to pay taxes less times and deal with less complicated taxation that one that fills only one place in that chain.
In short, the distinction between the two illustrates what many of us know all too well—that despite our many ills, government in the U.S. tends to be more accountable to the public than that in Europe.
Over there, government bureaucracies took over the role formerly held by a landed aristocracy, with a similar lack of accountability, a similar disdain for popular opinion, and (worst of all) a similar passivity on the part of the public.
You can see efforts to move the country in the European direction in the Obama administration, for instance with Obamacare attempting to dictate how medical care is organized in this country with no concern for what the public wants or doesn’t want. And you see the rebellious kickback to that in the most recent election, as candidate after candidate who voted for the scheme got tossed out of office.
The result has been one of the most rapid shifts in political power in the history of our country. We’re still not Euroized and that’s good.
Err, no. It is perfectly legal to show the VAT exclusive price and a B2B site can show that price only BUT a B2C site must show the inclusive price and cannot show the lower, exclusive, price more prominently .
Like ‘small print’, advertisers are always very innocent when caught.
Discussions on web boards (Hi Chris) have shown that VAT is very poorly taught in US colleges and business schools. Sales tax is different in every state but in some only the low rate makes its charging tax on tax tolerable.
VAT was designed to eliminate the advantage that vertically integrated businesses had under the previous taxes. Now everyone has computers it’s no big deal. Add up all the taxes due on sales, subtract the tax on items bought, pay the result over.
Googling, the text of the EU VAT guidance is now on the Amazon site.
Announcement: EU VAT Changes – KDP Impact
Shakes my head, poor Michael cannot post a comment over 20 words without bashing the current US president.
“And you see the rebellious kickback to that in the most recent election, as candidate after candidate who voted for the scheme got tossed out of office. ”
Republicans won 15 seats from Democrats, while 3 Republican-held seats turned Democratic so a net win of 12 seats for the Republicans? Really the Affordable Care Act only had 12 people vote for it? Out of 435 in the House? Remember it was approved 219–212. So those other 204 Democrats?
Remember facts > rhetoric
Bringing this back to the VAT discussion most states in the US actually have a “use tax” that is supposed to be self reported and rarely is. All those sales on eBay, Amazon, etc. by 3rd party sellers have a tax assigned to them and the purchaser is supposed to self report and pay those. I would guess that the percentage of people that actually do is in the very low single digits.
We in the library deal with this at the Friends of the Library book sale. All those little .25 for a paperback or $2 for those earrings needs to be reported by them. The State of Florida started cracking down on it here.
> Friends of the Library book sale. All those little .25 for a paperback or $2 for those earrings needs to be reported by them.
under VAT the annual sales would be far under the threshold so nothing to do or pay.