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The German government has cut VAT on audiobooks to 7%, and the rate on e-books might soon follow.
The decision was made by the German coalition government’s executive board on Tuesday (29th April) and means audiobook sellers will be able to charge less for the product now the VAT rate has been slashed from its previous 19%.
The German ministry of culture is also pushing for the same 7% VAT rate to apply to e-books in the country at European Union level. Print books currently attract a 7% VAT in Germany, so the decision, if made, would make e-books and print books equal as far as VAT is concerned.
The German government’s executive board’s decision read: “Due to rapidly advancing digitisation we insist on a rapid implementation of the agreed points. We want to make sure that print and electronic media and audio media are treated equally for tax.”
It added: “For audiobooks the European VAT system policy allows us to introduce today the reduced rate of VAT. At this point, we therefore want to amend the German turnover tax law accordingly. However, the VAT system policy provides no corresponding possibility for e-books, e-paper and other electronic information media. We think therefore that it is important that Germany is strongly committed in the discussions and negotiations at the European level, in favour of an exemption .”
The European Union’s VAT Directive does not allow VAT to be lowered on e-books. The European Commission is currently embroiled in legal battles with Luxembourg, which lowered its e-book VAT rate to 3% and France, which lowered its VAT to 7% on e-books in January 2012, against the ruling of the directive.
Luxembourg is the country that Amazon, Kobo and Barnes & Noble’s Nook base their European headquarters and the companies argue they vend e-books to consumers in the UK and other countries, so they only have to charge the lower 3% VAT. This puts domestic e-book retailers such as Watersones and Foyles in the UK at a competitive disadvantage, because the UK is following EU rules and charging 20% VAT on e-books. In the UK, print books attract 0% VAT. However, the e-book VAT loophole is due to be closed on 1st January 2015 when e-books will be charged by the country they are destined for, as opposed to where they are sold from.
As a result of Luxembourg and France’s flouting of the EU directive, both countries have been referred to the European Court of Justice by the European Commission.
The German government’s executive board also said on Tuesday (29th April) that it thought fixed book prices were “essential” for “the preservation of the diversity of books and bookstores” and should be “ensured by European law with regard to e-books.”