This week the Guardian UK highlighted the effects of a new European Union (EU) law which was introduced in January this year across all 28-member states. The law addresses VAT paid on e-books and other digital services (including broadcasting and telecommunications). Up until last year VAT rates on digital services and products were applied according to the VAT rate in the country where the product was sold, but now the VAT applied is the rate set by the European member state where the customer purchases the product.
The Bookseller did an admirable job of explaining the new VAT changes and the effects on Amazon and other e-book retailers.
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 selling e-books through retail channels like Amazon, Kobo and Nook is the choice for many self-published authors, some still rely a great deal on direct sales from their own websites with the bonus of not having to concede a retailer cut. But as the Guardian UK points out this week
, that could be quickly changing:
For microbusinesses faced with the job of calculating myriad tax rates, the new regime is an administrative nightmare. Author Cory Doctorow said he was forced to spend £700 on software and accountancy fees. Also, whereas businesses with an annual turnover of less than £81,000 used to be exempt from VAT, now if they sell even one ebook or audiobook to a customer outside the UK they must apply VAT to all UK sales too
. For many, the only feasible option is to sell through Amazon or another large retailer.
Like all new laws designed to curb big businesses finding tax 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. The European parliament is believed to be examining all VAT rates across European and the current situation for small and microbusinesses. Let’s hope they are not left waiting too long.