The European Court of Justice (ECJ) (K Oy C-219/13) has concluded that EU member states are free to treat paper and memory stick/CD’s as in affect the same supply and thus apply the reduced VAT rates to both.
There have been major disagreements between member states and the European Commission on this subject over the past three years. Luxembourg dropped e-books from the standard 15% VAT rate for Luxembourg to 3% in 2012. France then followed suite with a drop from the then standard French VAT 19.5% to 5.5%. This prompted countries like the UK and Germany to push the European Commission to put both Luxembourg and France under formal investigation for breaching the EU VAT Directive. The UK and German contended that was no provision for reduced VAT on ebooks. The EC referred both Luxembourg and France to the ECJ in October and November of 2013, respectively.
European Court gives member states more freedom on book VAT rates
However, last week, the ECJ gave its opinion on the matter on a case referred by Finland (K Oy C-219/13) concerning the delivery of books by paper vs. memory sticks and CDs. It ruled that countries may use different rates for the same goods delivered through different channels. This did not necessarily breach ‘fiscal neutrality’, an EU concept whereby markets for the same goods are distorted by varying tax rates. This is based on the views of the ‘average consumer’. This agreed with a previous Advocate General’s opinion.
The implications are that now any of the 28 member states are free to determine whether they have differing VAT rates for books. Countries such as the UK and Germany will retain their differentiation on e-books, but France and Luxembourg will persist with their harmonized rates subject to further ECJ action.
From the start of 2015 B2C sales of digital services like ebooks change to the VAT rate of the country of the counsumer.
Click for free Luxembourgian VAT info