This week saw the European Commission announce that it has launched infringement proceedings against France and Luxembourg for the VAT rates applied to sales of eBooks (7% and 3% respectively). Link to EU Press Release. This follows a decision by the two countries (presumably under some lobbying pressure) to change the VAT charged on eBooks at the start of 2012.
Those who have followed this story will know that there has been much campaigning by the publishing industry, politicians, and people who love reading, to extend the UK 0% VAT rate that applies to traditional books to also cover eBooks. And the campaign no doubt intensified after France and Luxembourg reduced their own rates, not least because (somewhat unsurprisingly) most of the big eBook sellers are now located in one of these two countries.
But the pushback in the UK has always been that extending our 0% rate would not be compatible with EU law. Indeed this was confirmed by a ministerial response to Tom Blenkinsop MP’s question at the end of last year see Tom's Question. This makes the current infringement proceedings especially interesting, as they will provide a good indication as to where the UK can go next.
And there is a crucial difference between the French and Luxembourg cases...
France’s 7% reduce rate stems from EU VAT Law which permits the application of a reduced rate of VAT to the supply of “books on all physical means of support”, whilst also specifically stating that “the reduced rates shall not apply to electronically supplied services”. France’s case will therefore focus around a broad interpretation of this EU law, and will need to counter the traditional view that an eBook falls within the EU definition of an electronically supplied service for VAT purposes. This argument will be a challenging one.
Where Luxembourg differs (and the UK would be similar to Luxembourg in this regard) is that it’s 3% reduced rate is not actually an EU reduced rate (indeed the maximum permitted reduced rate under EU VAT Law is 5%). The 3% Luxembourg rate pre-dates EU VAT harmonisation, and EU member states which had their own reduced VAT rates before 1991 (which differed from the new EU one) were allowed to keep those rates. In this regard the Luxembourg 3% is very similar to the UK 0% rate. And what this means is that Luxembourg’s 3% rate is not subject to the restriction as for France above i.e. that it “shall not apply to electronically supplied services”.
Luxembourg will therefore need to successfully argue its pre-1991 VAT law, which has always permitted a 3% reduced rate for books, is worded such that it, as a point of fact, it also includes eBooks. In other words, Luxembourg can’t actually change its pre-1991 law, but needs to be able to justify that what is already written includes books in both electronic and physical form. Now I don’t know exactly what that wording is, but there is a subtle difference to the French situation, and Luxembourg’s position is very similar to the one that the UK would need to apply our own 0% VAT rate to eBooks.
Watch this space, it will be an interesting one to follow.
