EU VAT Plan for Digital Publications Faces New Legal Roadblock

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By Joe Kirwin

European Union proposals to extend a reduced value-added tax rate to digital publications such as e-books and online newspapers hit another potential legal roadblock as the Czech Republic raised concerns that the plan would violate EU treaty rules guaranteeing equal treatment for EU citizens.

At the same time, the pending proposal, which rotating EU presidency holder Malta hopes to finalize before its six-month term ends in June, continued to be bogged down by Hungarian demands that it include reduced VAT rates for internet access.

The European Commission in 2016 proposed legislation that would give EU member countries the option of lowering VAT on digital publications in the same way that EU countries have the legal right to allow low levies on printed publications and books.

During a closed-door session in which EU ambassadors negotiated the pending VAT digital publication proposal, the Czech Republic argued that the proposal would violate Article 20 of the EU Charter of Fundamental Rights that assures equal treatment under EU law.

Digital vs Print

“Our basic concern is that with this law, the VAT rates on e-books could be significantly lower than the rates on printed books and this could be challenged in the European Court of the Justice,” said Czech Republic Spokesman Michal Buchacek. “Or there could be a situation where a member state did not employ the option and it could face a legal challenge.”

To overcome the Czech Republic concerns, the EU Council of Ministers’ legal service was asked to provide a legal opinion on the issue. The question, according to a confidential document obtained by Bloomberg BNA, submitted to the legal service is as follows: “After adoption of the proposal for a Council Directive amending Directive 2006/112/EC, as regards rates of VAT applied to books, newspapers and periodicals, would a member state’s ruling out in its national legislation any possibility of applying reduced rate of VAT to the supply of digital books electronically while at the same time applying the reduced rate to the physical publications, risk infringing the principle of equal treatment as set out in Art. 20 of the Charter of the Fundamental Rights of the EU?”

Publisher Criticism

The arguments raised by the Czech Republic triggered criticism from the European Publishers Council, which has been one of the most outspoken proponents for reducing VAT for digital publications, especially on e-books.

“It is hard to understand the concerns raised by the Czech Republic on this because the fact is, there are already numerous situations around the EU where there is different VAT treatment of printed publications. Just to give an example: in Denmark, newspapers have a zero rate of VAT while books have a 25 percent rate,” EPC official Nicolas Moschakis told Bloomberg BNA in an April 26 interview.

According to an EU diplomat present during the negotiations and who spoke to Bloomberg BNA on the condition of anonymity, the Czech Republic insisted the issue was a “red line.” To resolve the issue, the European Council legal service committed to provide a response in the coming days.

Meanwhile, Hungary continued to insist—with the support of the Czech Republic—that if the goal of the proposal is to boost the sale of digital publications, it should also cover the cost of accessing the internet. However, other EU countries expressed concerns that extending the proposal to internet access would lead to other member states insisting other products and services be included.

U.K. and Sanitary Products

Since the proposal was put forward in 2016, the U.K. has demanded that sanitary products for women be included. It insists this is a commitment EU leaders made in 2016 when the U.K. was negotiating concessions in advance of the Brexit referendum.

However, the EU diplomat present at the meeting said the U.K. didn’t repeat its demands on sanitary products during the April 26 negotiations.

Following the meeting, Wendy Borg, spokeswoman for the Maltese presidency, told Bloomberg BNA via an email that “there was broad support for the latest compromise text. However there were still a few member states that requested further legal clarification before they could agree with this proposal.”

The presidency will submit “this dossier” to the Council of Economic and Financial Affairs “for a general approach agreement once all legal concerns have been clarified and it would be clear all member states could agree with the text,” she added.

Based on EU law, all EU tax proposals require the unanimous consent of all 28 EU countries.

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

To contact the editor on this story: Penny Suhkhraj at psukhraj@bna.com

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