On 8th March 2018, Newscorp, publisher of The Sun and The Times lost its case in the UK’s First Tier Tribunal (FTT) on the VAT treatment that should apply to the digital versions of its printed newspapers.
Newscorp wanted the court to find that its digital newspapers should, when supplied in the UK, be subject to the zero VAT rate, enjoyed by its printed newspapers. However, despite the Tribunal agreeing that the content of the digital newspapers was “fundamentally the same” to the traditional newsprint ones, it backed HMRC and asserted that the standard-rated VAT treatment was the correct one.
Issues at Stake
Traditional newspapers are zero-rated for VAT purposes as laid out in Schedule 8 to the UK VAT Act. Ultimately, this appeal turned on whether digital newspapers are covered under that definition of “newspapers”.
Newscorp put forward the argument that the digital editions are “newspapers” as defined in the VAT Act, on the grounds that they are the digital equivalent of the newsprint editions: the content and news-gathering processes for both formats is virtually identical. Just like their printed newspaper counterparts, the digital newspapers “promote literacy and informed public debate”.
Newscorp further argued that the principle of fiscal neutrality demands the zero-rating, because from the point of view of the customer, they fulfil the same purpose.
The Tribunal dismissed the appeal on the basis that in the UK, zero-rating is confined to the supply of printed goods. Since digital newspapers are electronically supplied services, they do not fall within the scope of “newspapers” as defined in the UK VAT Act’s zero-rating provisions. The Tribunal also concluded that for the same reason, the principle of fiscal neutrality cannot be applied to extend the scope of zero rating from goods to services.
This decision reflects the CJEU ruling in Luxembourg European Commission v Luxembourg C-502/13 , which ruled that the supply of electronic services may not benefit from reduced VAT rates.
View from the EU
In June 2017, a European Commission measure (part of its VAT Action Plan), giving Member States the discretion to reduce VAT rates on digital publications to tally with their printed publication rates, stalled. So far, there has been no resolution of the issue.
This year, Switzerland became the first country in Europe to harmonise its VAT treatment of digital and traditional publications and Iceland is set to follow in 2019. Several EU Member States have tried to do this as well but have suffered infringement proceedings from the EU and reverted to the VAT treatment set out in the UK case above.
Now that BREXIT is on the horizon, the UK could be next in line to make changes to the rates which apply. Other countries may also apply such changes if the mooted amendment to how VAT rates are set (giving greater power to individual Member States) is carried. At the moment though there is no word on whether this will happen and hence businesses will have to continue applying the current rules.