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Brussels Launches Legal Challenge On E-Book VAT

by Ulrika Lomas, Tax-News.com, Brussels

25 October 2012


Brussels reportedly intends to address a warning to France and Luxembourg in the form of a reasoned opinion, threatening to involve the European Union (EU) Court of Justice if both countries continue to apply reduced value-added tax (VAT) rates to digital or e-books.

Both countries will have one month in which to comply, by amending the relevant legislation and increasing the VAT rates on e-books to the standard rates applicable, namely 19.6% in France and 15% in Luxembourg.

Defending its decision to levy a reduced VAT rate, the French government underlines the need for neutrality and therefore for the alignment of the taxation of traditional paper books with the taxation of digital books. Paper books in France have benefited from the reduced rate for a number of years now.

French Culture Minister Aurélie Filippetti provided her assurances on the issue, emphasizing the need to immediately align the VAT imposed on digital books with the tax on printed books, despite the infringement procedure that Brussels “appears to be” on the point of launching against France. France will maintain and defend its position, the culture minister stressed.

The European Commission launched an infringement procedure against France and Luxembourg back in July, highlighting the fact that the reduced rates of VAT currently applied to digital books in both countries are potentially incompatible with EU law.

France and Luxembourg decided to apply reduced rates rather than standard VAT rates to digital books as of January 1, 2012. In France, a VAT rate of 7% applies while in Luxembourg a rate of 3% is imposed.

Back in July, the Commission argued that EU legislation allows member states to apply reduced VAT rates to a limited list of goods and services as set out in the VAT Directive. The Commission pointed out, however, that the downloading of digital books is regarded as a service supplied electronically, which is not included in this list and cannot therefore be taxed at the reduced rate.

Alluding to its communication of December 2011 on the future of VAT, the Commission explained that it has launched a debate on the possibility of moving towards convergence of the VAT rates applicable, on the one hand, to traditional books and, on the other, to digital books, and aims to put forward proposals by the end of 2013.

The Commission insisted that it is not possible to ensure convergence towards the reduced rate currently applicable to traditional books without amending the VAT Directive, a move requiring unanimity among all 27 EU member states.

The Commission warned at the time that the situation is creating serious distortions of competition that are damaging to economic operators in the other 25 member states since digital books can easily be purchased in a state other than the one where the consumer resides and, under the current rules, the VAT rate that applies is that of the provider’s, not the customer’s, member state.

The Commission noted that local actors in the electronic book market have complained that some of the dominant players in this market have reorganized their distribution channels to benefit from these reduced rates, which has apparently had a serious effect on the sale of books (both digital and traditional) in the other member states in the first quarter of 2012.

A reasoned opinion is the second stage of the infringement procedure.

TAGS: tax | European Commission | value added tax (VAT) | law | Luxembourg | legislation | tax rates | France | European Union (EU) | services | Europe

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