EC confirms crackdown on e-book VAT

The European Commission has decided to refer France and Luxembourg to the EU Court of Justice over its cut-rate VAT on e-books.

A statement from the EC said failure to comply with EU law on VAT resulted in "serious distortions of competition to the detriment of traders from other EU Member States" which "goes against the basic principle of European tax policy: fair competition within the internal market".

France and Luxembourg have unilaterally dropped their rates (5.5% in France, 3% in Luxembourg) in order to equalise the tax charged on printed books with that imposed on digital books. However the moves meant e-booksellers located in Luxembourg—including Amazon, Kobo, Barnes & Noble and Bilbary—enjoyed a tax advantage over e-booksellers located in the UK, where VAT on e-books is 20%.

Today's EC statement went on: "The effects of such unfair competition are felt in Member States that apply the VAT Directive correctly. Several Ministers of Finance and  representatives of both the paper and epublishing industries have voiced their concern on this subject and have pointed out to the European Commission the negative effect on sales of books in their domestic markets."

Commisioner Semeta, responsible for taxation, commented: "Questions concerning the tax treatment of physical books and e-books must certainly be tackled. And this is exactly what the Commission is doing as part of the wider review of reduced VAT rates. However, in the meantime, the Member States must play fair. Infringement of the VAT rules of re-books distorts the single market and runs counter to the fundamental EU principle of fair tax competition."

The EC said it had decided to refer the matter to the Court because neither state had made legislative changes following publication of the EC's "reasoned opinion" into their e-book VAT rates last October.