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Luxembourg E-books VAT cut from 15% to 3% 2012

  • Dec 12, 2011 | Richard Asquith

Luxembourg E-books VAT cut from 15% to 3% 2012

This month, Luxembourg – European home of Amazon - has joined the growing number of EU member states to reduce the VAT rate on the sale of electronic books and newspapers. It announced on 12 December a cutting of VAT on digital publishing from 15% to 3% from January 2012. This will mean a potential saving off many Kindle – which retails from Luxembourg - ebooks of up to £1.

France has recently given a similar tax break, and Spain is reviewing its position. This is in contradiction to the EU-set rules on VAT which requires it to be charged at the higher, standard rate applicable to the country.

The motives for these actions vary from seeking to attract foreign investment from the global publishing industry through to wanting to help subsidise the struggling newspaper sector.

Traditional print at VAT advantage

Most EU states apply zero or reduced VAT rates to traditional paper publications, books and newspapers. This is bound-up in the principle that such materials make a vital cultural and educational contribution to society. Whilst this discount is not strictly permitted by the European VAT legislation, Directives, they are provided for through temporary derogations if in place prior to the creation of the European Single Market – January 1991.

EU blocks lower VAT for digital books and news

By contrast, the EU views the supply of electronic-based reading materials – books and newspapers - as a different form of supply, and so should be levied at the higher rate. Below are examples of the different tax rates for the two medium:

Country Printed VAT rate Electronic VAT rate

  • Belgium 6% 21%
  • Germany 7% 19%
  • Ireland 0% 21%
  • Spain 4% 18%
  • UK 0% 20%

In October of this year the EU sought to clarify its position around two arguments:

  1. They are electronic supplies, which are liable to the normal standard VAT rates according to Article 98(2) of the VAT Directive; and
  2. They contain large elements of advance marketing and advertising features, which makes them more commercial in nature and therefore not warranting special consideration for VAT rate derogations.

Also, in general, the EC is not willing to make new exceptions on the application of the standard VAT rate. It views any extension of this general principle as a distortion of the principles of VAT as a general tax on consumption.

Luxembourg and France move to defy EU position

A number of EU countries are now concerned about the anomaly between traditional and electronic books, and also the impact on the troubled newspaper industry.

On the 12 December, the Luxembourg Ministry of Finance issued guidance (Circular No 756) on the introduction of a super-reduced 3% VAT rate on electronic books and related materials. Digital print is currently liable to 15% VAT in Luxembourg. The new rate will come into effect on 1 January 2012. Luxembourg is the biggest player in the industry as its standard VAT rate of 15% is the lowest in the EU. This policy has attracted Amazon, Skype and Netflix who can supply their e-services across the continent at this low rate through an EU tax anomaly.

The Luxembourg change follows the decision of France to reduce its VAT rate on electronic print from the standard rate of 19.6% to 5.5% in 2012.

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.