France and Luxembourg ordered to restore e-book VAT

France and Luxembourg ordered to restore e-book VAT

The European Court of Justice has ordered France and Luxembourg to restore their standard VAT rates on e-books in a ruling announced today (5th March).

The court upheld a decision previously made by European Commission, which ruled that the two countries cannot charge the same VAT rate on e-books as physical books. 

Contrary to EC directives, for the last few years Luxembourg has been applying a super-reduced VAT rate of 3% on e-books and France 5.5%. The court has now ruled both countries must restore their normal VAT rates on e-books, which are 17% and 20% respectively.

The European Court of Justice said: “The commission has asked the court to declare that, by applying a reduced rate of VAT to the supply of electronic books, France and Luxembourg have failed to fulfil their obligation under the VAT Directive.” The court upheld the notion that e-books were classified as “electronic services” instead of digital versions of physical books.  The judgment said: “The court rejects the argument that the supply of electronic books constitutes a supply of goods and not a supply of services.”

The Commission had also criticised Luxembourg for applying a super-reduced VAT rate of 3% to e-books, even though VAT Directive prohibits  VAT rates of below 5% in principle. 

France lowered its VAT rate on e-books in 2012 to 5.5%, following in the footsteps of Luxembourg, which already offered a 3% VAT rate, enticing Amazon, Apple, Kobo and Nook to base their European headquarters in the nation. As a result, the European Commission took legal action against the two countries in 2013, arguing that the reduced VAT rates could only apply to physical books, not e-books.  

Both countries have been warned that failure to reinstate the national VAT rate on e-books could lead to further action including financial penalties.

Following the court's ruling, the Federation of European Publishers has united with the European and International Booksellers Federation and the European Writers Association to condemn the unequal charges to print and digital books and urged the Commission to change its stance on classing e-books as digital services. 

In an open letter to the Martin Schulz, president of the European Parliament, Donald Tusk, president of the European Council and Jean-Claude Juncker, president of the European Commission, the organisations said: “Today’s judgment by the CJEU against France and Luxembourg would have been avoided were a discriminatory regime not in place which requires Member States to apply much higher VAT rates to digital publications than print.

“We, the representatives of the book value chain, strongly believe that the value of a book does not depend on its format or the way it is accessed by readers. Therefore, we urge the Commission to take swift action to amend the relevant legislation to ensure it reflects technological progress and remove a serious hindrance to the development of the e-book market.”

The group added that  their request fitted “neatly” into the Commission’s  Work Programme, which states that "barriers to digital are barriers to jobs, prosperity and progress".

The UK complies with the EU directive on VAT and treats e-books as digital services, charging a 20% VAT on them. From the start of this year, a new European law on VAT came in, directing that VAT will be charged according to the country where customers are based, not the country the company is based, so Amazon will be charged a 20% VAT rate for every Kindle book sold to someone based in the UK, despite choosing to set up its European headquarters in Luxembourg with the low e-book VAT rate.  

Politicians, booksellers and publishers in the UK have campaigned for an equal VAT rate to be levied on print and physical books, however, calling for a level playing field.