Warning for those who sell ebooks directly (VAT)

Graylorne · Dec 2, 2014

Happily I don't sell my own e-books; I leave that to Amazon & Smashwords.
My EU prices are linked to the Amazon US dollar price, so Amazon does it all for me.

This link goes to the EU site explaining it all...

slhuang · Dec 2, 2014

Graylorne said:
Happily I don't sell my own e-books; I leave that to Amazon & Smashwords.
My EU prices are linked to the Amazon US dollar price, so Amazon does it all for me.

Did you not get the email from Amazon KDP? After January 1, that will no longer be the case.

My reading of it (WHICH MAY BE WRONG, I AM NOT A TAX PROFESSIONAL) is that they'll still calculate the EU prices according to our list price but it won't include the VAT, so we can either leave it (and lose X percent off the top, thus possibly knocking us into a lower royalty bracket) or go in and manually change every EU country's price to 100+X percent of what it lists. So my reading of it is that you don't have to do anything different during setup, but if you don't do the extra work you'll get less in royalties from EU countries than you would think according to your list price.

AGAIN, THIS READING OF IT MAY BE WRONG but that's my interpretation. I too thought the email was phrased quite confusingly.

Now, here's what really confuses ME. Amazon's examples do not seem mathematically sound to this non-tax professional. For instance, they're calculating a 20 percent VAT addition as 120% of the list price rather than 125%. So when you take 20 percent off of it, you don't get 100%. The first example they give is:

£5.00 with 20 percent VAT becomes 120% of £5.00, or £6.00
but £6.00 minus 20 percent is £4.80, NOT £5.00, because 20% of £6.00 is more than 20% of £5.00.

My instinct would be to price a £5.00 book at 125% of £5.00, or £6.25, since 20% off £6.25 equals £5.00. But that's not what they said.

Ditto for all the other examples. They're adding 20% of the list price, not adding enough so subtracting 20% of the final price will give the list price.

As you can see, doing it this way gives a lower list than you want, so this absolutely could affect royalty percentages. It's either a mathematical failure on Amazon's part or I'm not understanding the VAT correctly. I'm going to write to Amazon and ask. (If I can figure it out, I'll see if I can whip up a calculator for self-publishers to put on my website, if someone else doesn't get to it first.)

See below in the thread -- I was not understanding VAT correctly.

slhuang · Dec 2, 2014

Oh, this site from Amazon is helpful. Lists the min and max prices for royalty brackets in VAT countries. Won't help you calculate, but it'll tell you if you're dropping royalty brackets.

Also some other info (click EU VAT on the left).

Hmm, I think the math problem might be me not understanding VAT correctly -- it looks like the VAT might be calculated on what the final price ends up being, so Amazon is only paying 20 percent of the VAT of the actual price of the book . . . or something? So that the VAT being paid ends up 20 percent of the after-VAT final price of the book? IDK, I'm still going to ask about it.

unionrdr · Dec 2, 2014

I need an answer to this myself. I don't get it either!... :Shrug:

Arpeggio · Dec 2, 2014

girlyswot said:
The question of what constitutes a 3rd party platform is unclear. As far as I can tell, a payment service like Paypal doesn't count. I don't know enough about eJunkie to hazard a guess as to whether they count. Ravelry, the big knitting/crochet site, has taken steps to ensure that they no longer handle any EU sales (you can still use Ravelry to sell patterns, but EU sales will be directed through a UK company which is set up to deal with the new VAT issues).

According to the following:

https://support.clickbank.com/entries/22829338-Signing-Up-For-a-ClickBank-Account

...about halfway down the page it says:

"Collecting Taxes: Because ClickBank is considered the final retailer/reseller for all products sold through ClickBank, it is our responsibility to collect and remit various types of sales taxes based on the customer's location."

I then went here http://www.clickbank.com/ clicked on "market place" (top right in the black bar) and searched for "Piano" (arbitrary), went to one of the websites in the results, clicked "ad to cart" and it took me to an https clickbank page for the product in which the VAT was added.

So assuming ClickBank's statement on who the seller is, is systemic to the law then yes places like eJunkie would count as the seller if you use them to facilitate sales on your own website. Otherwise if not and it's specific to ClickBank's own arrangements then no. So I'm still unsure!

NinjaFingers · Dec 2, 2014

Manual fulfillment does not help.

For those outside the EU, the only feasible option is to go for a full e-commerce solution with a company such as Fastspring (a friend of mine is looking into them) who will handle all of this for you. This means an increase in transaction costs that may have to be passed on in prices. The difference is about 4% over using a basic service such as Paypal. However, moving forward, using a basic service won't work for anyone unless they lock it down to their own country. It's almost certain the US will reciprocate by demanding sales tax be paid...so...

And Red, the new law does not, in fact, apply to hotels and travel bookings, so whoever used that example didn't read it. Of course, given it's a mess of legalese, I don't blame them.

Old Hack · Dec 2, 2014

Merging the two KDP VAT threads into one. Please remain calm while the threads are in motion.

RedWombat · Dec 2, 2014

NinjaFingers said:
And Red, the new law does not, in fact, apply to hotels and travel bookings, so whoever used that example didn't read it. Of course, given it's a mess of legalese, I don't blame them.

...it was, AFAIK, one of the reps from the UK tax office. Heh.

But it's pretty obvious they don't understand it either, since they've contradicted themselves on what counts as manual "enough" (i.e. a human attaches a PDF to an e-mail) to avoid the law.

Graylorne · Dec 2, 2014

slhuang said:
Did you not get the email from Amazon KDP? After January 1, that will no longer be the case.

My reading of it (WHICH MAY BE WRONG, I AM NOT A TAX PROFESSIONAL) is that they'll still calculate the EU prices according to our list price but it won't include the VAT, so we can either leave it (and lose X percent off the top, thus possibly knocking us into a lower royalty bracket) or go in and manually change every EU country's price to 100+X percent of what it lists. So my reading of it is that you don't have to do anything different during setup, but if you don't do the extra work you'll get less in royalties from EU countries than you would think according to your list price.

AGAIN, THIS READING OF IT MAY BE WRONG but that's my interpretation. I too thought the email was phrased quite confusingly.

Now, here's what really confuses ME. Amazon's examples do not seem mathematically sound to this non-tax professional. For instance, they're calculating a 20 percent VAT addition as 120% of the list price rather than 125%. So when you take 20 percent off of it, you don't get 100%. The first example they give is:

£5.00 with 20 percent VAT becomes 120% of £5.00, or £6.00
but £6.00 minus 20 percent is £4.80, NOT £5.00, because 20% of £6.00 is more than 20% of £5.00.

My instinct would be to price a £5.00 book at 125% of £5.00, or £6.25, since 20% off £6.25 equals £5.00. But that's not what they said.

Ditto for all the other examples. They're adding 20% of the list price, not adding enough so subtracting 20% of the final price will give the list price.

As you can see, doing it this way gives a lower list than you want, so this absolutely could affect royalty percentages. It's either a mathematical failure on Amazon's part of I'm not understanding the VAT correctly. I'm going to write to Amazon and ask. (If I can figure it out, I'll see if I can whip up a calculator for self-publishers to put on my website, if someone else doesn't get to it first.)

Well, they (KDP) were kind enough to send me an explanation in Dutch. That makes it for me slightly easier. Slightly.
I read, For authors who have their prices in marketplaces automatically adjusted in the EU to their list prices in the US, we convert the list price in the US to local currency. The list will include VAT. As an example, the author list price in the US is set to $ 10.00, we convert that value into euros for the German marketplace, and assuming an exchange rate of 0.8, the list price will include VAT at Amazon.de € 8,00 amounts . For purchases in Germany, we then pull off 19% VAT and calculate the royalties on a list price of € 6.72 excluding VAT.

To understand the whole matter I do need more time. It came as a surprise over here as well.

The only thing to do is to try and get ebooks/epapers and such off that telecom business list and onto the list of printed matter. But that could take some time...

Polenth · Dec 2, 2014

slhuang said:
My reading of it (WHICH MAY BE WRONG, I AM NOT A TAX PROFESSIONAL) is that they'll still calculate the EU prices according to our list price but it won't include the VAT, so we can either leave it (and lose X percent off the top, thus possibly knocking us into a lower royalty bracket) or go in and manually change every EU country's price to 100+X percent of what it lists. So my reading of it is that you don't have to do anything different during setup, but if you don't do the extra work you'll get less in royalties from EU countries than you would think according to your list price.

That's my reading of it too. The price we set in the future includes VAT, whereas before it excluded VAT. One issue with this is each Amazon site has customers from more than one country, so to ensure you don't lose money you have to set VAT at the highest potential VAT rate.

This issue isn't caused by the VAT laws, as Amazon didn't have to do it this way legally. The cynic in me wonders if they've picked this method so authors complain to their governments, because some people will assume it was the EU and not Amazon at fault. It would have been a quiet transition with barely a ripple if they'd simply carried on adding VAT to prices.

slhuang · Dec 2, 2014

Well, Amazon got back to me and didn't answer my question in specific but basically repeated their email to us with more examples added on.

I think I had the wrong end of the stick with the VAT though, after thinking about it, because taxes are usually taken from the list price and then added on top, rather than taking a certain percentage out of it. So if I were trying to add, say, a 7% sales tax to a price to be included, I would do it the way Amazon is doing it -- the way they worded it got me confused as to when and how the percentage was being taken, but after more thought that seems right. Anyway, y'all can probably safely ignore my side-eyeing of the math above.

girlyswot · Dec 3, 2014

slhuang said:
Now, here's what really confuses ME. Amazon's examples do not seem mathematically sound to this non-tax professional. For instance, they're calculating a 20 percent VAT addition as 120% of the list price rather than 125%. So when you take 20 percent off of it, you don't get 100%. The first example they give is:

£5.00 with 20 percent VAT becomes 120% of £5.00, or £6.00
but £6.00 minus 20 percent is £4.80, NOT £5.00, because 20% of £6.00 is more than 20% of £5.00.

My instinct would be to price a £5.00 book at 125% of £5.00, or £6.25, since 20% off £6.25 equals £5.00. But that's not what they said.

Ditto for all the other examples. They're adding 20% of the list price, not adding enough so subtracting 20% of the final price will give the list price.

As you can see, doing it this way gives a lower list than you want, so this absolutely could affect royalty percentages. It's either a mathematical failure on Amazon's part or I'm not understanding the VAT correctly. I'm going to write to Amazon and ask. (If I can figure it out, I'll see if I can whip up a calculator for self-publishers to put on my website, if someone else doesn't get to it first.)

You're not understanding the VAT correctly.

Their examples are indeed how VAT works. It's 20% added on to whatever the list price is, not 20% of the final sale price. I think that's how sales tax works in the US too, in my experience, although prices there are usually listed without sales tax whereas in the EU they are usually listed after the tax has been added so you know what the final price will be.

girlyswot · Dec 3, 2014

slhuang said:
Well, Amazon got back to me and didn't answer my question in specific but basically repeated their email to us with more examples added on.

I think I had the wrong end of the stick with the VAT though, after thinking about it, because taxes are usually taken from the list price and then added on top, rather than taking a certain percentage out of it. So if I were trying to add, say, a 7% sales tax to a price to be included, I would do it the way Amazon is doing it -- the way they worded it got me confused as to when and how the percentage was being taken, but after more thought that seems right. Anyway, y'all can probably safely ignore my side-eyeing of the math above.

Oh! Should have read to the end of the thread. Yeah, that's how it works.

slhuang · Dec 3, 2014

Thanks, girlyswot! In retrospect I feel kind of dumb thinking it would have worked the other way, but I guess here in the States we'd don't generally include tax in the price (actually, except for things like gasoline, but I've never done the math on that . . .

). Anyway, I really appreciate the explanation.

slhuang · Dec 3, 2014

I've been going over this in more detail and here's the part that makes me really throw up my hands:

Royalties will continue to be calculated based on the list price without VAT. The amount of VAT applied depends on the country where the customer is located. Consider a book with a £6.00 VAT-inclusive price on Amazon.co.uk, for sales to customers in the UK we would apply the UK’s 20% VAT rate and the price we use to calculate royalty would be £5.00. The 23% Irish VAT rate will apply to purchases from Ireland, so a customer buying from Ireland would still see £6.00 but, applying the 23% Irish VAT rate, we would calculate royalty based on the VAT-exclusive list price of £4.88.

Since they're not adding it on but making you include it, and because Amazon doesn't have stores specific to every single EU country, there is absolutely no way to ensure that you'll stay in the royalty bracket you want because you can't customize your prices to where the customers live (which Amazon COULD easily do on their end, grrr). Unless you jack all your prices by 27 percent (!) to account for the highest-VAT country (Hungary). Now, I don't have a lot of Hungarian customers and I imagine for a lot of authors it's not a huge deal if they drop list price / royalty brackets for those purchases, but for things like the UK/Ireland discrepancy might make a difference if you're, say, a big seller in the UK. And it's just annoying, dammit.

eta: And it just occurred to me that this is unfair on, say, Mexican customers who shop in the Spain store, if their favorite author's books suddenly jump to match the Spain VAT and the Mexican customers have to pay it anyway even though it's not going to cover a tax. At least, that's my reading of things.

Does anyone know which countries are eligible to shop in which Amazon stores? Or is everyone eligible to shop everywhere and it's just that the currency and language make it more convenient to choose the one that fits you? I can't remember if I've ever tried shopping at a non-dot-com Amazon . . . (I ask because I'm writing an easy little calculator for people and I wanted to make a note of this.)

slhuang · Dec 3, 2014

And I wrote up the little calculator thingie here. All it is is a very quick percentage multiplication, nothing fancy, but it's all in one place for everyone.

Note that this will not take care of the aforementioned problem of people in other countries with higher VATs buying at these stores (and AFAICT will artificially inflate the prices for people from other countries with no or lower VATs).

Please let me know if I got anything wrong on it.

Old Hack · Dec 3, 2014

The next time I get told that Amazon is on the side of authors I'm going to point to this. Grrr.

TheaFair · Dec 5, 2014

I'm still rather lost. I'm going to use that calculator a lot in the future though, thanks for that. I'm probably just going to leave things be and then go in and see what Amazon's done when they do the initial readjustment just to see if the numbers make more sense than the words. I get, maybe, 1 UK sale for every 20 US or Canadian sale. I think I can swallow the hit the first few times just to see how the percentage gets handled.

I sell on Etsy as well, physical items, and I know the digital sellers there are being told they have to register with the EU to collect and remit tax to each country. There's lots of back and forth going on about who should be responsible for collecting the VAT and there's no clear answers from the people running the site on that. Some sellers are discussing closing down until the whole matter is made clearer. The change is causing a lot of headache everywhere I guess.

Bolero · Dec 9, 2014

ACTION - letter writing to try and get this changed.

Regarding self-publishers self-selling (rather than what Amazon is doing) - Author Juliet McKenna and others have also been looking into this, and lobbying the UK government about it.

See
http://www.julietemckenna.com/ for all the posts which include some pretty good explanations of the impact.

Plus the new Digital Microbusiness Action Group.

http://digitalmicrobusinessactiongr...ince-cables-response-to-the-vatmoss-petition/

Juliet and others have been talking to the HMRC, got a 10,000 signature petition together, had an answer from Vince Cable they consider to be inadequate and are currently asking that everyone affected writes to MPs, MEPs and anyone else relevant.

Old Hack · Dec 9, 2014

This is an issue with VAT collection across Europe, and it's to do with how Amazon operates, not how governments regulate VAT.

Lobbying governments is all very well, but it's not going to deal with what needs to be done, if I've got that right.

Bolero · Dec 9, 2014

From what I read on the links I've posted,

1. This was introduced to regulate operations like Amazon.

2. The impact on direct selling self-publishers is severe and collateral damage.

3. Part of the problem is the way that the UK government has implemented the EU rules - other countries are doing it differently.

4. HMRC and Vince Cable are being unhelpful and missing the carefully made points regarding the impact on small direct sellers.

5. If lots of people write in, and make it clear to the UK government that lots of people are affected, the way it is implemented might be changed/improved so that small scale direct sellers are no longer impacted.

I am not joining in on this discussion on the part of it regarding Amazon and people selling through Amazon, I am purely raising this as an issue for small scale direct sellers, who might want to assist in the lobbying regarding small scale direct sellers.

ULTRAGOTHA · Dec 9, 2014

No, it's not an Amazon problem. Or not mainly an Amazon problem.

Those who do direct e-sales off their own websites (knitting patterns, e-books, online classes) are incredibly impacted. To the point of probably having to stop doing that.

Those who sell everything through Amazon or other large sellers are not *as* impacted, because the large seller will do the data collection of where the customer physically is for you. Amazon does seem to have chosen a weird and producer-unfriendly way to implement how prices are calculated, however.

The idea of a British subject with a British address and a British credit card buying an e-book via a British smart phone from a British seller whilst sitting in the Channel train on a trip home from Paris, but on British soil, and the rules requiring French VAT to be assessed just boggle my mind.

unionrdr · Dec 10, 2014

I'm still boggled myself. Going to wait & see how it works out at first & go from there. The e-mail amazon has been sending me is confusing. I'm not a tax man...

Bolero · Dec 10, 2014

Should have mentioned this before. The microbusiness action group folks are asking the following:

"Please add your name, your website details and a brief description of your business in a comment.
That is all we need at the moment, to help gauge the impact of all this.
As we get a clearer picture of the numbers of businesses and the sorts of traders affected, then relevant mailing lists, article links and other resources can be added to this site."

See https://digitalmicrobusinessactiongroup.wordpress.com/sign-up-here/

Old Hack · Dec 10, 2014

ULTRAGOTHA said:
No, it's not an Amazon problem. Or not mainly an Amazon problem.

The problem as I see it is that Amazon has changed the way it accounts for VAT on e-books, and that's having a direct impact on people's royalties and pricing.

VAT has always been due on e-books, as far as I'm aware. But please correct me if that's not the case.

I haven't read widely on this issue, but earlier in this thread I read this:

Polenth said:
This issue isn't caused by the VAT laws, as Amazon didn't have to do it this way legally. The cynic in me wonders if they've picked this method so authors complain to their governments, because some people will assume it was the EU and not Amazon at fault. It would have been a quiet transition with barely a ripple if they'd simply carried on adding VAT to prices.

Are you saying that this isn't the case?

As for how we pay VAT and account for the sales, isn't that a normal part of running a publishing business? And isn't being a self publisher running a publishing business?

All businesses have to conform to the tax laws in the countries they operate. It often involves complicated accounting procedures and frequent reporting. But we do it, because it's a legal requirement.

I am still not clear why people are complaining to Vince Cable about VAT which is payable in non-UK countries. He's a UK MP, and doesn't have any real influence in those other countries. I'd welcome clarification on why it's assumed he can help.

Warning for those who sell ebooks directly (VAT)

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