EU delays e-book VAT cuts and fraud reverse charge
At July 13th’s EU’s monthly meeting of finance minister, ECOFIN, member states again failed to reach a compromise on the cutting of VAT rates on e-publications and the anti-VAT fraud domestic reverse charge. However, progress was made on the latter, which may encourage the Czech Republic to agreeing to the former passing at the next ECOFIN in October.
Outdated EU Directive blocked e-book and online news tax subsidy
The e-publications proposal is to permit member states to cut the VAT rate on electronic books and online news subscriptions from their high standards to a reduced or nil VAT rate. This would harmonise e-publishing services with the subsidised rates enjoyed by their printed equivalents.
The issue has been a prolonged negotiation by the states over many years, including several cases at the European Court of Justice which had blocked the tax cut. A compromise by France towards the Czech Republic on other VAT fraud measures failed to clear the again way this time.
The rules governing VAT on books and other supplies in the EU are set out in the VAT Directive. All 28 member states are obliged to transpose this into their own tax laws. The Directive lists a limited number of products which countries may set a nil or reduced VAT rate on. This includes printed books, newspapers and magazines. However, when the Directive was drawn up, electronic books and online journals were not in existence. Test cases brought to the European Court of Justice by France, Luxembourg, Italy and Poland backed the view that the member states had to agree on a Directive amendment to correct this anomaly.
Czech Republic holds up reforms
The proposal to allow harmonisation of the rates on e-books was recommended last year by the European Commission. However, the Czech Republic blocked it twice previously, and again at this latest meeting. It was seeking a concession from France and others on introducing the domestic general reverse charge to prevent VAT fraud. Opponents to the measure, which include the European Commission, believe that it would have only a marginal effect on the estimated €150bn VAT fraud issue – and may just push fraud into other member states.
Slovakia was also unable to agree to the compromise text in its current form.
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