EU VAT E-Book Plan Snagged Over U.K. Sanitary Product Demands

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By Joe Kirwin

European Union plans to allow member countries to lower value-added tax on e-books and other digital publications is at risk over the U.K.'s demands to also permit a reduced VAT rate for female sanitary products.

Germany, France and other EU countries are lining up in opposition to the U.K. demands to expand the pending VAT proposal to include products such as tampons and sanitary napkins, a high-profile British political issue preceding the U.K.'s referendum over whether or not to remain in the EU.

But U.K. officials insist a March 2016 agreement among EU leaders—to permit EU countries to set VAT rates for specific products—justifies adding sanitary products to the pending proposal calling for reduced VAT rates for digital publications.

“We strongly support applying a zero rate of VAT women’s sanitary products and the Finance Bill 2016 put beyond a doubt that we are going to introduce zero rating,” a U.K. government spokesperson told Bloomberg BNA in an Feb. 10 e-mail statement. “We need appropriate EU legislation so we will continue to discuss this with our European partners.”

German and French officials, however, insist the U.K.'s demands should be dealt with when the European Commission makes a legislative proposal to overhaul the EU VAT system later in 2017.

“We really do not understand why the British are calling for sanitary products to be added to this proposal now that they will be leaving the EU,” German spokesman Hardy Boeckle told Bloomberg BNA during a Feb. 10 telephone interview.

“This was a demand they made before the Brexit referendum. There was an agreement that it would be addressed when the European Commission makes its proposal to revise the EU VAT legislation that will consider giving countries more flexibility with rates.”

Sanitary Products and Brexit

Reduced VAT rates for sanitary products was a key demand that former U.K. Prime Minister David Cameron made in March 2016 when he was negotiating concessions from the EU as part of his campaign to keep his country in the bloc.

To accommodate Cameron, EU leaders agreed at a March 2016 summit that the commission would make a proposal to allow EU countries to set rates for specific products—the proposal will be made by the end of 2017.

Upcoming VAT Overhaul

However Germany and others insist the March 2016 concessions involved the upcoming European Commission VAT overhaul.

“We should not be mixing VAT and e-books and sanitary products,” a French government spokesman told Bloomberg BNA .

“There will be proposal later this year on VAT and that is where it should be addressed. If we start allowing one country to add products there certainly will be others and the proposal will get sidetracked,” the spokesman added.

Meanwhile European publishers, who insist reduced VAT rates for digital publications are crucial to their economic livelihood, are concerned that the pending U.K. demand will stalemate the proposal and eventually get bogged down in the upcoming Brexit negotiations between the U.K. and the EU.

“It is clear that something like sanitary products does not belong in a proposal that deals with e-books,” said Nikolas Moschakis, policy adviser for the European Publishers Council.

“Considering that it takes a unanimous agreement to get any tax legislation approved in the Council of Ministers we are very worried that this straight forward proposal will be delayed and possibly caught up in British politics and the Brexit negotiations,” Moschakis added.

Malta Presidency Hopes

Malta, which holds the rotating EU presidency, signaled that it hopes to get an agreement on the proposal for reduced VAT for digital publications during its term, which ends June 30. However, the issue will not be on the agenda when EU finance ministers meet Feb. 21 in Brussels.

The current European Commission, headed by President Jean-Claude Juncker, has made it a political priority to give EU member states the right to lower VAT rates on digital publications. That commitment came after the previous commission successfully challenged Luxembourg and France, in the European Court of Justice, after both nations reduced VAT rates on e-books.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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