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EU to review VAT on ebooks this week

  • Oct 21, 2013 | Richard Asquith

EU to review VAT on ebooks this week

The European Council of Ministers is set to discuss this week the differing VAT rates charged by the 28 member states on e-books.

EU VAT variations on e-books

The current EU VAT Directive permits member countries to charge reduced VAT rates on printed books.  Most countries charge between 5% and 10%, compared to average EU VAT rate of just over 21%.  Generally, countries charge the rates prevailing when they joined the EU.

However, the relatively new digital e-books have created wide differences as the VAT Directive does not provide specific guidance on which rates to use.  Over half the member states charge the standard VAT rate.  However, countries such as France charge a reduce of 5.5%.

Amazon's Luxembourg base attracts criticism

The lowest VAT rate on e-books is charged in Luxembourg, at 3%.  Luxembourg dropped its e-books to this rate in 2012.  This is particularly because it wished to retain the world's biggest online bookseller, Amazon, which sells digital books through its highly successful Kindle e-book reader.  A further anomaly in the EU VAT rules means Amazon can sell e-books to consumers across all of the European Union at its Luxembourg 3% VAT rather rather than the typically higher local standard rates (e.g. UK's 20% VAT).

EC fails to harmonise VAT rates upwards

This competitive advantage has drawn much criticism from other member countries.  In October 2012, under pressure from other EU member states, the European Commission threatened Luxembourg and France with court action at the European Court of Justice if they did not raise their e-book VAT rates to their standard VAT rates - 15% and 19.6%, respectively.

However, this seems now to have petered out.  Potentially because both countries would claim that under the principle of fiscal neutrality, the EC would not be able to force the countries to charge differing rates on the same goods or services.

Poland pushes VAT harmonisation

The Polish presidency of the European Council has now picked up the baton.  As part of a wider range of pro-digital market initiatives, it has put the lowering of e-book VAT rates across the market onto this week's agenda of the Council's meeting in Brussels.

Japan is also looking at consumption tax on e-books. Separately, the EU is to review all reduced VAT rates in an attempt to reduce Value Added Tax leakage from budgets.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.