There’s good news for UK buyers of ebooks. The price they pay for them is going to come down soon, but probably only if they buy them from Amazon. UK-based retailers may match them, but will have to swallow the price difference if they do. And this is all thanks to our beloved government.

This doesn’t affect me terribly much because it is all about VAT, and my business is sufficiently small that I’m not required to charge VAT on sales I make. As I pointed out last month, that means that publishers get substantially more money from a sale through me than for a sale of the same book through Amazon (39% more in the case of Tim Maughan’s Paintwork). I’d like to be able to undercut Amazon, but if I did there’s a huge risk that they would notice and reduce their prices to match, which would do a huge disservice to the publishers whose books I stock, and who have no control over what price Amazon sells their books at. But all this will go away soon, because the rate of VAT that Amazon charges will drop significantly in January. From then on it will only be 3%, not the 20% they currently charge.

Why is this possible? Well Amazon’s European operation is based in Luxembourg, and the government there has decided to bring down the rate of VAT on ebooks to help “local” industry. You can see why they might do that, especially as there are other small European countries that Amazon might decide to relocate to if Luxembourg proved unresponsive to their lobbying.

This will be a major headache for any UK-based company that sells ebooks and is unable to relocate to Luxembourg or a similar friendly outpost. Here we still have to charge 20% VAT on such purchases. (Yes, I know VAT is zero on physical books, but ebooks are apparently “software” so the standard rate applies). As the online buyer is extremely aware of price comparison, this means UK-based ebook sellers will either lose a lot of business to Amazon, or they’ll have to swallow that 17% difference, which is a pretty big hit to take on a low-margin business.

What does our fiercely nationalistic government have to say about this? Are they, perhaps, pleading poverty and the need for tax revenue to fund essential services? Not a bit of it, as The Bookseller explains, their defense is that EU law does not allow them to reduce VAT on ebooks, and they have to do what the EU says. Except that Luxembourg is part of the EU. And so is France, which is also reducing the rate of VAT on ebooks.

So there you have it. Mr. Cameron is very happy to show off his bulldog independence in economic summits, but when it comes down to providing multi-national companies with tax advantages that allow them to massively undercut British businesses it is a different matter. Amazon’s wishes must be respected, so in such cases the British chihuahua rolls over and explains how much it likes having its tummy tickled by Brussels, while the fierce French poodle looks on in stunned disbelief.

(Sorry Mexico)