“Different VAT rates between physical and digital goods and services do not fully reflect today's realities.”[i]
Following the European Commission’s pledge to scrap the standard VAT rate on digitally supplied publications and e-books, a public consultation was launched on July 27, 2016 on the different VAT rates for printed and electronic publications. The consultation closed on September 19, 2016.
The pledge and consultation are part of the European Commission’s Action Plan, adopted on April 7, 2016, to tackle the VAT gap and adapt the VAT system to the digital economy and the needs of small and medium enterprises.
The objective of the consultation was to seek the opinions of businesses, such as publishers and booksellers, as well as the public and other stakeholders on electronically supplied publications in connection with:
Historic Rate Differential Between Print and Digital Books
Reduced VAT rates are narrowly curtailed under EU VAT laws which EU Member States are obligated to transpose into domestic law. At present, the 28 EU Member States are generally free to apply reduced or super-reduced VAT rates to printed publications, but not to digital services. In addition, the U.K. and Ireland tax printed publications at the zero rate, further to government negotiations when the countries originally joined the EU. Most other Member States provide for reduced rates for printed books. However, to comply with current EU legislation, electronic publications (such as e-books) must be taxed at the national standard VAT rate, which varies from 17 percent to 27 percent across the EU. Therefore, the same material may be taxed differently simply as a result of the medium through which it is made available (whether print or digital). To compound the inconsistency, digital books published on CD-ROMs and USB drives are currently classified as goods that are eligible for the national reduced VAT rates or zero rate.
Opposing a “Tax on Knowledge”
In recent years, the different treatment of printed and electronically supplied publications has sparked considerable controversy. There has been pressure from publishers, politicians and booksellers throughout Europe to classify e-books as books eligible for preferential rates. The Society of Authors stated that, “On the general principle of avoiding a tax on knowledge, we intend that books, journals, newspapers and broadcasting shall be at a zero rate.”
The issue has brought EU Member States into conflict with the European Commission. The Commission brought infringement proceedings against both France and Luxembourg in 2013 for applying reduced VAT rates to e-books. On March 5, 2015, the Court of Justice of the European Union ruled that e-books are “electronic services” and not digital versions of “physical books.”[ii] This unpopular decision led to the growing realization that new legislation was necessary for similar goods and services to be subject to equal VAT treatment to reflect technological progress.
In the light of these issues, the European Commission is committed to introducing new legislation to allow Member States to apply the same VAT rates to electronically supplied publications and printed publications, with effect as of 2017.
Post Script: The Advocate General Weighs In
On September 8, 2016, the Advocate General opined in Rzecznik Praw Obywatelskich[iii] that excluding electronically supplied publications from the scope of a Member State’s reduced VAT rate applicable to print publications is compatible with the principle of equal treatment on the basis of the method of physical distribution. This is because printed and electronically supplied publications are provided through different means than print books. This opinion highlights the current divergence between the law and economic reality, which forthcoming EU legislation seeks to address.
[i] Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committed on an action plan on VAT: Towards a single EU VAT area – Time to decide.
[iii] Case C-390/15.
By Sergeja Krajnc-Gani, Senior Editor, Bloomberg BNA, with contributions from Jon Trevelyan, Editor, Bloomberg BNA.
For more information about VAT, see the Bloomberg BNA VAT Navigator.
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