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E-books are subject to VAT at the standard rate, making them distinct from printed titles with their reduced rate provisions, the Court of Justice of the European Union (CJEU) has determined.
The long-running debate on books’ discrepancy of rates between digital and print went before the court as the result of the European Commission’s infraction proceedings against Luxembourg and France for applying sales tax at reduced rates to e-books of 3% and 5.5% respectively.
E-books are subject to VAT at the standard rate, making them distinct from printed titles with their reduced rate provisions, the Court of Justice of the European Union (CJEU) has determined.
The long-running debate on books’ discrepancy of rates between digital and print went before the court as the result of the European Commission’s infraction proceedings against Luxembourg and France for applying sales tax at reduced rates to e-books of 3% and 5.5% respectively.
The CJEU ruled that a reduced rate can apply only to supplies of goods and services covered by annex III to the VAT directive, which refers to the “supply of books... on all physical means of support”. The court concluded that physical support was required to read a digital book but it was not included in the supply, meaning annex III did not include the supply of e-titles within its scope.
The court also found that the directive excluded possibility of a reduced VAT rate being applied to “electronically supplied services”. It rejected the argument that the supply of e-books constituted a supply of goods. The titles are downloaded from a website, making them “electronically supplied services”, not “books on a physical means of support”, excluding from the reduced rate provisions.
Indirect tax expert Ian Carpenter said the judgment was unsurprising but unlikely to be the end of the matter.
“The digital agenda for Europe has previously recognised the disparity of the application of VAT to printed books and e-books,” he said. “One of the guiding principles of EU law is that similar goods and services should be subject to the same VAT rate.”
Carpenter, a partner at Baker Tilly, noted that the application of reduced rates to e-books by some member states had “resulted in significant distortions of competition to the detriment of suppliers in the other EU countries applying VAT at the standard rate in compliance with EU law”.
He added, “For almost ten years, large digital service providers have located their European headquarters in Luxembourg, enabling them to charge consumers the reduced VAT rate of 3%. While this distortion of competition has largely been addressed by the new VAT rules applicable since 1 January 2015, whereby e-booksellers have had to charge VAT at the rate set by the country where the buyer resides, rather than the rate where the servers are located, the new rules have failed to address the fundamental principle of fiscal neutrality: namely, the discrepancy in VAT treatment between printed books and the same in electronic form.”
KPMG indirect tax partner Mike Camburn claimed the CJEU’s ruling reaffirmed the “position that electronic services per se cannot benefit from reduced rates. To be able to possibly revisit this, it would need a mighty effort by all member states to actively lobby and legislate to get a reduced rate.”
The decision raised a further question as to whether the breach of the VAT rules by the French and Luxembourg governments “unlawfully aided e-book sellers, which benefited from the previously reduced rates of VAT in competing with the paper book providers”, said Camburn.
