During the past year France and Luxembourg have lowered the rate of VAT for supplies of e-books.
These have been bought down to the same, reduced rates that apply to physical, hard copy books. Across the rest of Europe however, it is generally the case that tax authorities have continued to differentiate between the two products and apply different VAT rates respectively (i.e. in the UK, a physical newspaper is subject to 0% VAT whilst a paid-for online copy attracts a rate of 20%).
The rationale for these countries reducing the VAT rate for online supplies is the argument that in effect, the two products are identical and hence the rules of fiscal neutrality are infringed by applying different VAT rates to them. This opinion was recently given more weight by the European Court of Justice’s decision in the Finnish case of K Oy (C-219/13), which stated that if in the eyes of the average consumer there was no difference between a product then different VAT rates should not be applied.
Despite the decision in K Oy, the EU Commission is proceeding with infraction cases against France and Luxembourg.
These cases have been brought for applying the reduced rates because under EU VAT rules, it is not possible for electronically supplied services to be subject to a reduced rate of VAT. It is expected that these cases will be heard sometime in 2015.
These proceedings do not appear to have put off Malta and Italy however, who have both announced that reduced rates will apply to similar products as well. In Malta, supplies of audio books and books published on CDs, DVDs, SD-Cards, USB drives and similar media will be subject to VAT at 5% with effect from 1 January 2015, down from the existing 18%. According to reports in Italy, the rate for e-books will be 4% also with effect from 1st January 2015, coming down from the current rate of 22%.
This area of VAT looks set for some significant changes and decisions in the coming year, which will have profound changes for the businesses who operate in the affected industries. We will continue to keep you updated on developments as they happen, in order that those businesses impacted by the changes can manage them as efficiently as possible.