Selling e-books into the European market is about to get a lot more complicated for retailers and publishers from the 1st of January, 2015. And when I say publishers, I include author-publishers selling e-books directly from their websites. The new European Union (EU) law comes into affect next year across all 28-member states and addresses VAT paid on e-books and other digital services (including broadcasting and telecommunications). Up until now VAT rates on digital services and products were applied according to the VAT rate in the country where the product was sold, but next year the VAT applied will be the rate set by the European member state the customer purchases the product.
The EU was once about breaking down borders and making trade easier between member states, but the reality is that EU member states apply different rates of VAT on digital products and services, mostly between 15-20%. However, Luxembourg applies a very low rate of just 3%. Enter Amazon EU S.a.r.L. (registered and based in Luxembourg) stage right to exploit the tax loophole years ago, followed by Amazon EU S.a.r.L. exit, stage left! Yes, that might put some sense on the curious email I received at the start of this month from Amazon KDP.
Dear Sir or Madam, This is to inform you that on 1st November 2014, Amazon EU S.à r.l. will be replaced as a party to your Kindle Direct Publishing Agreement with another Amazon company, Amazon Media EU S.à r.l.
If you need to send us any legal notices or refer to our EU VAT number after 1st November 2014, please use the following details:
Amazon Media EU S.à r.l.
5 Rue Plaetis, L-2338 Luxembourg, Luxembourg
VAT Registration Number: LU 20944528
If you are owed any EU royalty payments after 1st November 2014, you may begin receiving these payments from Amazon Media EU S.à r.l. rather than Amazon EU S.à r.l. Otherwise, this change will not impact your relationship with us in any way.
Thank you for your continued support.
Amazon EU S.à r.l.
The Bookseller’s journalistic soldiers of misfortune — Lisa Campbell and Sarah Shaffi — were tasked with putting sense on this potential minefield and did an admirable job
The move prevents Amazon, Nook and Kobo from applying a low 3% tax on e-books sold to European countries, because their headquarters are in Luxembourg. Instead, the e-book retailers will have to apply the standard UK VAT rate (20%) to e-books sold into the UK. As a result, Luxembourg stands to lose around €800m a year from the ruling, while the UK and Germany stand to gain around €350m each per annum.
It also threatens to raise the price of UK e-books on Amazon, Kobo and Nook websites come January, and begs the question of who will carry the burden of the extra VAT charge those retailers will have to pay.
From this date, supplies of these services to any non-VAT registered consumer will be subject to the rate of VAT applicable in the customer’s location—not necessarily straightforward to determine in itself—and, as a result, businesses will need to remit payment to each EU member state where sales occur. To avoid the need to register in up to 28 different EU member states, publishers can opt for the Mini One-Stop Shop (MOSS) alternative: registering in its home jurisdiction only, and submitting only one return and payment.
MOSS: good news or bad?
Businesses can apply for MOSS registration as of October 2014, so that the system is ready to use from 1st January 2015. On the face of it, MOSS is good news. However, there is a nasty “sting in the tail” if businesses fail to comply with the MOSS requirements in each of the 28 member states in which they trade.
While the question of whether retailers will attempt to push extra VAT charges onto publishers and the possibility of higher e-book prices, perhaps the other question will be how the author-publisher deals with this when it comes to direct sales via a website and running a small business.
Like all new laws designed to curb big businesses finding loopholes, they will absorb these changes a lot easier. I fear this may actually hurt the two most important people in the book world as usual — the reader and the author.
Mick Rooney – Publishing Consultant
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