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European Union: How to Tax an E-book

  • Mar 5, 2013 | Gail Cole

 European Commission: Should E-books Be Eligible for a Reduced VAT rate?

E-book: a book composed in or converted to digital format for display on a computer screen or handheld device." Merriam Webster.

Determining just what an e-book is helps determine how it should be taxed. Is it tangible personal property, subject to sales and use tax the way a book is? Is it a digital product, and therefore subject to sales and use taxes in some states, such as Tennessee? Or is it a digital product not subject to the digital goods tax? (Wisconsin allows an exemption for downloaded sheet music.)

This distinction is particularly important in the European Union, where books are eligible for a reduced VAT (value added tax) rate. A glance at Amazon.co.uk VAT Rates reveals that in most countries from Austria to Sweden, books are taxed at a much lower rate than other items. For example:

CountryBooksChildren's ApparelAll Other Items
France & Monaco5.5%19.6%19.6%
Great Britain & Northern Ireland0%0%20%

Denmark is a notable exception, with a flat 25% VAT on all listed items.

The UK VAT page notes that the "VAT rates below are not applicable to digital content, including Kindle content or MP3 downloads,"

Yet France and Luxembourg have been "applying reduced rates of VAT to ebooks," and according to a European Commission press release from February 2013, the European Commission is taking them to court over the matter. The press release reads:

"EU  law is very clear on which goods and services are eligible for a reduced VAT rate. The provision of ebooks is an electronically provided service and as such cannot benefit from a reduced rate."

The Official Journal of the European Union Council Direction … on the common system of value added tax enumerates a "List of Supplies of Goods and Services to Which the Reduced Rates Referred to In Article 98 May Be Replied." Books, newspapers and periodicals are on that list. E-books are not. (Annex III).

Why It Matters: "Fair Competition Within the Internal Market"

The European Commission points out that "[f]ailure to comply with this legislation by France and Luxembourg results in serious distortions of competition to the detriment of traders from other EU Member States."  In October 2012, France and Luxembourg were asked to stop taxing e-books at reduced rates, but they didn't.

A European Commission press release from July 2012 reveals that, at the time, France was taxing e-books at 7%, Luxembourg at 3%. The Commission launched a debate on the subject of books, e-books and the VAT in December 2011; proposals are expected by the end of 2013.

Play Fair

Commissioner Šemeta, who is responsible for taxation underscores that "the Member States must play fair" while the tax treatment of e-books is being examined. He notes that "[i]nfringement of the VAT rules for ebooks distorts the single market and runs counter to the fundamental EU principle of fair tax competition."

The European Union does not have sales tax like the United States. Instead, it has a value added tax.

How does your business keep up with sales tax changes?

photo credit: Wiertz Sébastien via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.