ECJ: 'Member states can set different VAT for e-books'

ECJ: 'Member states can set different VAT for e-books'

The European Court of Justice (ECJ) has said that EU member states are free to charge different rates of VAT on physical books and e-books, without necessarily breaching the EU concept of ‘fiscal neutrality’.

VAT Live reported that the case concerned “the delivery of books by paper vs. memory sticks and CDs”. The ECJ ruled that “countries may use different rates for the same goods delivered through different channels” and that this did not “necessarily” breach the fiscal neutrality concept, which says that goods that are the same or similar must be treated the same for tax purposes to avoid any distortion of competition.

France and Luxembourg dropped their digital book VAT rates (to 5.5% in France, 3% in Luxembourg) in 2013 to make the tax charged on e-books the same as that for printed books. But this mean e-booksellers located in Luxembourg enjoyed a tax advantage over their counterparts in the UK, where VAT on e-books is 20%.

France and Luxembourg were both referred to the ECJ in 2013 by the European Commission, but last week the ECJ gave its opinion on differing VAT rates in a case referred by Finland. Last year an EU consultation document reiterated the EC view that similar goods and services should be subject to the same VAT rate and progress in technology should be taken into account in this respect.  But until it resolves the issue, the EU says that member states need to respect the law.

Earlier this year the UK government said there was “no scope” to change the 20% VAT rate on e-books. “The sale of a digital book is classified as an electronic service and attracts the standard rate of VAT under EU law. Legal advice obtained by the government indicates there is no scope to change the VAT treatment of the sale of digital book and similar products under EU law.”

From the beginning of 2015 a change in VAT legislation means e-book companies will have to charge VAT at the rate where the customer is who buys the e-book, rather than at the rate where the servers of the e-book business are based. And despite intense lobbying, it now seems likely that this will continue to be the 20% fee levied buy the UK government.