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EU takes France and Luxembourg to ECJ court on Amazon ebooks VAT

  • Feb 21, 2013 | Richard Asquith

EU takes France and Luxembourg to ECJ court on Amazon ebooks VAT

The European Union's European Commission yesterday announced plans to refer both Luxembourg and France for their continuing application of a reduced VAT rate on the supply of electronic books.  This may impact the world's largest ebook retailer, Amazon Kindle, which has based itself in Luxembourg to enable it to sell online books across Europe at only 3% - compared to the average EU VAT rate of 21%.

Luxembourg and France cut ebook VAT in 2012

Under the EU's Value Added Tax laws (VAT Directive, countries are free to set their own higher, standard VAT rates.  In certain circumstances, they may charge reduced rates on key goods.  These circumstances are set out by the EC.

One example is books, which much countries charge rates of between 0% and 10%.  However, the VAT Directives does not provide for digital books.  This means that they should be subject to the standard VAT rate.

In 2012, both Luxembourg and France cut their VAT levies on ebooks down to 3% and 7%, respectively.  In July 2012, the EC warned both countries to revert back to their standard VAT rates within 30 days.

Both countries failed to do so, so the EC yesterday referred the countries to the highest court of appeal on EU issues, the European Court of Justice.  It stated that countries may not deviate from the existing VAT Directive without the full agreement of all 27 EU member states.

The EU plans to publish new VAT proposals for EU services by the end of 2013.

Amazon takes advantage of EU digital VAT loophole

One of the many anomalies within the EU VAT regime concerns the VAT rate on cross border sales to consumer of ebooks.  Whilst businesses must sell goods across EU borders at the VAT rate of the county of residency of the consumer - and pay the VAT to the local tax authorities - for digital goods, the same business only charges the VAT rate of its country of residency.  This has encouraged non-EU sellers (Amazon, Netflicks, Microsoft etc) of downloadable books, music, films and web telephony to locate their EU businesses in Luxembourg.  At only 15% standard VAT rate, this gives the companies a pricing advantage over EU-based providers.

Amazon in particular has benefited from Luxembourg's decision to cut the VAT rate on ebooks from 15% to 3%.

EU to end Luxembourg's Amazon ebooks VAT loophole in 2015

However, the EU has already agreed to undo this anomaly in VAT law from 1 January 2015 with  new EU VAT digital services rules in 2015.  From this date, providers will follow the same VAT rules as goods - charging the VAT rate of the end consumers' country.

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.