Thursday, September 19, 2013
So Who Will Pay The eBook VAT on 1st January 2015?
We are all aware that the EU VAT rules will change at the beginning of 2015 and that this will effectively end the offshore tax loophole operations of the ebook operators. This EU rule change will not impact the corporation tax loophole and so we will not see a mass migration from those countries who offer low corporation tax today, but it demonstrates that the EU as a block has the ability when pushed to change the rules.
The EU official statement is available on their taxation and customs site. http://ec.europa.eu/taxation_customs/taxation/vat/traders/e-commerce/
What it mean is that EU operators have to pay VAT at the point of consumption not at the point of dispatch and operations. They also no longer have to any VAT on consumption outside the EU which may be advantageous, but doesn’t not mean that the non EU country will not charge their own tax on digital services. Those supplying from outside the EU will be charged at point of consumption. A long overdue level playing field even though it is some 15 months away.
All operators will now have to amend their systems to operate and levy tax accordingly, which is not in itself a simple task.
This is going to be an interesting change to watch as those with a large customer base in a high VAT country will have to either pass on the hike in tax, absorb it or negotiate tighter supplier costs. We often automatically expect the cost increase to be passed onto the consumer but with digital ebooks this may not be as simple as that. As prices of ebooks continue to fall, we are clearly seeing the emergence of price points and once these start to be accepted by consumers, merely adding say 20% may not be palatable and it could trigger of a further hike in the price wars. Those with deeper pockets may elect to start to force a visible price difference and hurt the margins of others who don’t have the flexibility to part absorb this drop in profit, or the clout to get tighter cost prices.
Far from damaging Amazon this could damage others and in fact strengthen Amazon’s grip on suppliers and appeal to consumers.