Thursday 25 October 2012

Amazon ebook VAT advantage removed - back to level-playing-field competition?

According to The Guardian, Amazon is to be stripped of its huge tax advantage in the UK (VAT 20%) on the sales of ebooks after the European commission ordered Luxembourg (VAT 3%) to close a VAT loophole. Luxembourg will be forced to increase its VAT rate to 15% on EU digital sales. This was inevitable (see Kamblog) especially given Amazon’s 90% share of the UK ebook category.

In my opinion, what is more important for publishers and other suppliers to Amazon was a reference to base price equality in the original Guardian article…..   

Contract terms with Amazon
According to The Guardian, an Amazon contract they have seen says: "If the base price exceeds the base price … provided to a similar service then … the base price hereunder will be deemed to be equal to such lower price, effective as of the date such lower price comes into effect." In other words, if Amazon discover that a retail competitor is being given a lower price, they will apply that price to current dealings and claw back any difference, from the time the lower price was charged.

Like all retailers, we believe that Amazon are entitled to set and agree trading terms in advance and apply conditions that they will enforce where necessary. It is the responsibility of suppliers to ensure that they quantify the terms and implications of all deals with retailers before entering into contractual agreements...

Application of base-price-equality to all retailers, retrospectively...
In the case of Amazon’s ebook base-pricing comparison, the issue for all suppliers is even more important. There is nothing to prevent the same principle being applied to the rest of Amazon’s business, or indeed, to any retailer buying from suppliers.

Action for suppliers:
  1. Check your base-price per customer, and do a numbers-based ‘what if’ on the lowest price being applied to your entire customer portfolio, retrospectively (its not going to go away)
  2. Forget ‘trade secrecy’ and assume all customers know everything (remembering that it only takes one staff member…)
  3. Check that a true-like-with-like comparison is being made, and be able to calculate and demonstrate your rationale (the numbers will count in the end...)
  4. Find ways of lowering prices to customers to the same level for the same level-of-access to consumer, or find ways of terminating the ‘lowest price’ customer (pay the retailer for work done on your behalf)
  5. In the meantime, ask for proof of lower prices elsewhere, to avoid the mistake of defending the wrong case, and thereby giving the retailer additional scope for claw-back (hear the buyer out, and answer the objection)
In other words, best to play fair with all customers, before you are forced to, and establish a defensible basis for fair-share negotiation via sustainable numbers…before you need to....

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