EU may eliminate reduced VAT on books and other goods

The European Commission has now concluded its public review of the current policies on EU reduced VAT rates. This included seeking opinions on the inconsistencies on VAT rates across the twenty seven member states on items such as books, e-books, children’s clothing and the supplies of key services.

The EC has long sought to eradicate reduced VAT rates, which it sees as interfering with the workings of the free market. EU countries are generally only permitted to apply them where they are already in existence prior to the country joining up. Most countries apply lowered VAT rates on similar goods – medicines, public transport, hotel accommodation, public services (e.g. water and gas) and sporting event. The can also be significant variances – for example children’s clothing is zero rated in the UK, but at the full 23% in Poland.

This issue has been highlighted by the recent decision of the EC to prosecute Luxembourg and France for applying reduced VAT rates on the sale of ebooks. They charge 3% and 5%, respectively. This has left other countries which charge higher rates short on revenues since ebooks are often sold from Luxembourg to consumers in the rest of the EU.

The EC’s commission may force a compromise on this issue, ruling that all books – paper and electronic – should be charged at a single, lower rate. This would be a blow to countries like the UK that set books at the nil VAT rate.

Whatever the conclusion, the recommendation will require unanimous vote if the reduced VAT rate is to be significantly changed. However, the EU will continue to pursue Luxembourg and Paris to force them to raise their VAT rates on ebooks.

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