Two interesting stories broke today pertaining to ebooks in Europe.
No “Most Favored Nations” on the Continent
First, Reuters reports that Amazon has reached an agreement with the European Commission to drop the “most favored nation” clause in its publisher contracts. Such clauses required publishers to give Amazon at least as good a deal as it gave any other outlet—meaning that if Amazon noticed a better price on a competitor’s web site, they would lower theirs to match.
The clauses didn’t just cover prices, either. Reuters notes, “Such clauses relate to business models, release dates, catalogs of e-books, features of e-books, promotions, agency prices, agency commissions and wholesale prices.”
These clauses were used not only by Amazon but also Apple and other major ebook stores, and they were a key issue in the chain of events that led to the Agency Five publishers’ settlements and the Department of Justice’s successful prosecution of Apple for illegal collusion in the agency pricing matter. It was not unheard of for publishers to have to pull books from Amazon during promotions to prevent Amazon from giving them away for free as well. It is also the most likely reason Baen had to change the terms of its own ebook bundle sales in order to place its own ebooks with Amazon.
Conversely, since Amazon is free to continue applying those terms to small publishers and self-publishing writers regardless of whether it can stick large publishers with them, some self-publishing writers have used this automatic “most favored nation” price matching to give some of their ebooks away free via Amazon.
Amazon has committed to leaving the “most favored nation” clause out of contracts with European publishers for the next five years. The story concludes that the European Commission is still investigating Amazon’s use of Luxembourg as its European headquarters to minimize its tax bill.
Draining the Ebook VAT
On a related note, the Irish Times reports that the European Parliament Economic and Monetary Affairs Committee has voted 48 to one, with two abstentions, to approve a proposal that would allow member states to lower the Value-Added Tax (roughly equivalent to the US’s “sales tax”) rate they charge on ebooks.
Under current regulations, EU member states must charge a 15% VAT rate on ebooks, whereas for printed publications they may charge between zero and 5%. The new proposal would extend the printed publication VAT rate to ebooks as well. Before going into effect, the proposal must first be ratified by the EU Parliament as a whole, later this month.
Amazon had allegedly chosen to operate its ebook sales division out of Luxembourg because Luxembourg, along with France, had chosen to disregard the EU’s directive and charge a much lower VAT on ebooks. Under the old VAT laws, sales taxes were charged according to the country from which the digital goods were sold, so Amazon could charge Luxembourg’s much lower VAT rate to customers from elsewhere in the EU. However, the 2014 VAT MOSS law changed that to require taxes be charged based on the country from which the purchase was made.
If this new law goes through, it will certainly be overdue. Ebook sellers and customers alike have been complaining for years of the unrealistically high VAT rates ebook stores had been forced to charge. This will have the effect of considerably lowering ebooks’ effective prices in Europe once it takes effect.
If you found this post worth reading and want to kick in a buck or two to the author, click here.
Reducing the VAT rate for ebooks would be good news for us independent authors. We could either lower prices, or we would make more in royalties. I know my UK revenues have gone down considerably since the higher VAT was imposed a while back.
LikeLiked by 1 person
Ah yes, but this VAT-On, VAT-Off business leaves me feeling like I’m on some amusement park ride. My head is spinning.
The real problem lies with the VATs themselves. They’re not only a hidden tax, often with laws that prohibit retailers from revealing how much of an item’s cost is a VAT, they force sellers to adjust retail prices up or down every time the VAT changes. The American sales tax, added on at the time of sale, makes more sense.
That is it makes more sense to everyone but governments, who’re grabbing as much as 25% of the price of everything that people buy. That’s one reason why the average European in every country but bank-rich and tax-sheltered Luxembourg, has a lower standard of living than the average citizen in every U.S. state, even the poorest.
Maybe it’s different now, but when my brother was in England and I ordered a bunch of stuff from Amazon.co.uk for him to bring back, Amazon clearly explained how much VAT I would have to pay.
It is perfectly legal to show the VAT exclusive price and a B2B site can show that price only BUT a B2C site or store must show the inclusive price and cannot show the lower, exclusive, price more prominently .
Like ‘small print’, advertisers are always very innocent when caught.
Amazon email you an invoice that shows the VAT paid and the till roll at most supermarkets (I have an Aldi example here) will do the same.
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.