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EU rules for higher VAT on e-books

  • Mar 4, 2015 | Richard Asquith

EU rules for higher VAT on e-books

The EU’s European Court of Justice (ECJ) has today ruled that France and Luxembourg must raise their reduced VAT rates on e-book sales. The decision will bring to a close a long running dispute between members states – with the UK and Germany insisting that e-books cannot enjoy the same reduced or nil VAT rates as printed books.

VAT on e-books vs printed books

Under the EU VAT Directive, which sets the harmonised rules for VAT across the 28 member states, countries are allowed to levy a reduced or nil VAT rate on printed books as a special social policy exemption. However, the Directive is silent on e-books; as it is a relatively new service it was not explicitly defined at the time, which implies that countries’ higher, standard rates must apply. Luxemburg and France broke ranks on this in 2012, reclassifying e-books at the same rate as printed books – 3% and 5.5%, respectively. Italy and Malta joined them at the start of 2015, lowering their rates to 4% and 5%, respectively.

UK and Germany challenge e-book tax break

The UK and Germany has pressed the European Commission (EC) to challenge this VAT cut, and the EC lodged cases with the ECJ in 2013. The UK and Germany charge their standard VAT rates of 20% and 19%, respectively, on e-books. This compares to their reduced rates of nil and 7%, respectively, on printed books.

Today, the ECJ has published its ruling, stating that since e-books do not have the same physical characteristics as printed books – which is a requirement of the VAT Directive and subsequent case law rulings – they cannot benefit from the printed book reduced VAT derogation.

Disappointment to printing industry

The ruling will come as a big disappointment to the publishing industry, and will seem questionable from a common sense standpoint to the general public. But the ECJ is bound by the archaic EU VAT rules on reduced VAT only for books literally made of paper.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara