UK booksellers have called for VAT on e-books to be scrapped in the week that the European Commission announced the creation of an expert group to explore taxation in the digital economy.
Waterstones managing director James Daunt, Foyles chief executive Sam Husain and The Book People chief executive Seni Glaister have all endorsed the idea that e-books should attract the same 0% VAT as print books, instead of the 20% currently levied on digital titles in the UK.
Removing e-book VAT would provide a level playing field for retailers who are headquartered in the UK, rather than in Luxembourg, which only charges 3% VAT on e-books. Amazon, Kobo and Nook all benefit from the Luxembourg rate.
European booksellers are required by EU law to charge the full standard VAT rate for e-book purchases, but France and Luxembourg broke ranks last year to cut rates to 5.5% and 3% respectively to encourage investment in their digital industries.
Daunt said: “The benefit [of removing VAT on e-books] is that it will equalise pricing and nullify the competitive advantage secured by Amazon, Nook and Kobo through their Luxembourg domicile. Our market share is low, so the realistic benefit is relatively small but no less welcome for that.”
Husain said: “It would make sense for e-books to be categorised as ‘books’ rather than as a digital products, and thus be zero-rated. Foyles has tended to live with this anomaly as the proportion of e-book retail sales is relatively small compared to physical books. I’m sure Foyles would sell more e-books if it was a level playing field on VAT.”
However, Husain added: “In the interests of the consumer, we would also like to avoid a debate on physical books being subject to VAT.”
Glaister, whose company The Book People is heavily investing in e-books as a revenue strand, said: “Bringing the cost of e-books more in line with printed books should be welcomed by anyone with a literacy agenda . . . But what we would welcome more is a ruling that removed much bigger barriers to competition. In the case of Apple, this means the removal of the mandatory in-app purchasing restrictions, and in the case of Amazon, dealing with its refusal to host other e-book-selling apps on its Android/Kindle App store. These barriers make for a very disjointed experience and limit consumer choice.”
On Tuesday (22nd), the European Commission announced it would create a High Level Expert Group on Taxation of the Digital Economy, which will examine the best ways of taxing the digital economy in the EU, weighing up both the benefits and risks of various approaches as well as presenting solutions.
Algirdas Šemeta, EC commissioner for taxation, said: “Taxation must not be an obstacle to all that is good about the digital revolution. Yet, we must also ensure that the digital sector plays fair and pays fair. The challenges linked to taxing the digital economy are immense and there are no ready-made answers. Therefore, we need deep, informed and focused reflection on this issue within the EU to ensure that the next steps we take are the right ones.”
Meanwhile, Alan Sinyor, head of VAT for law firm Berwin Leighton Paisner LLP, still plans to bring a case against HMRC in the UK on behalf of an unnamed client, or clients, who have been charged VAT on e-books but not on printed books. If the case succeeds, the client/s may be able to claim back VAT already levied.
Sinyor said: “Recent developments (cases dealing with the principle of fiscal neutrality and some political developments at EU level) magnify the importance of our VAT case. The case will be the first opportunity for a court to analyse and decide on the extent, if any, to which fiscal neutrality applies to e-books and physical books.”
In February, the EC referred France and Luxembourg to the European Court of Justice over their VAT rates. However, from 2015 a change in VAT legislation means e-book companies will have to charge VAT at the rate charged by the country of the purchaser of the e-book, rather than at the rate where the servers of the e-book business are based.
Booksellers Association chief executive Tim Godfray said: “Most observers take the view that the European Court of Justice will not hear the case until well after 1st January 2015.”