UK declines to lower VAT on e-books, gives Amazon big advantage in UK e-book sales
December 23, 2011 | 2:59 pm
After the matter came up in Parliament last week, the UK has once again declined to lower the value-added tax on e-books, which currently stands at 20%. The Bookseller reports David Gauke, the UK’s exchequer secretary, said the UK could not do this and remain in compliance with European Union law, which classes electronic media as services rather than goods and requires they be taxed at the higher rate.
Other European countries, including France and Luxembourg, have reduced their own VATs on e-books significantly. France has told its publishers it will pay any fines the EU imposes on them for flouting its VAT law.
The VAT drop in Luxembourg (to 3%) gives Amazon a fairly large competitive advantage, since that’s where Amazon’s European operation is based—so UK e-book buyers will only pay a 3% tax when they buy an e-book from Amazon, as opposed to the 20% they have to pay everyone based in the UK. The EU is going to change how VATs are handled so that buyers will pay the tax of their country rather than that of the vendor, but that change will not take effect until 2015.