EC commits to lowering e-book VAT

The European Commission (EC) has committed to reducing VAT rates on e-books, in an Action Plan announced today (7th April); The Bookseller understands later detailed proposals will allow states to reduce VAT on e-books to as low as 5%.

As previously reported by The Bookseller, the Action Plan was due to be released on 23rd March, but was postponed because of the terror attacks in Brussels.

The EC's newly released Plan commits it to “address the unequal treatment of paper versus e-publications for VAT purposes” in the context of the Digital Single Market. The fine details of the proposal are to be released in a further publication this autumn, The Bookseller understands.

Print books and e-books are treated differently by the EC for VAT purposes, with e-books classified as an “electronic service” which is not eligible for a reduced VAT rate under current EC rules, unlike printed books, which are. Publishers, authors and booksellers across Europe have previously protested about the inequality of VAT charged at one level on e-books and at a different level on print books.

Today the VAT Action Plan promised: “…Legal constraints often result in the VAT rate on e-publications being higher than the one on the corresponding printed version. Our proposal will attempt to align VAT rates policy for e- publications across the EU.”

The Bookseller understands that the specific legislation for VAT on e-publications in autumn is likely to suggest a reduction in minimum VAT rates for the sector as low as the current reduced rate of 5%. Member States would then be able to decide whether or not they wanted to use this rate. Over the next few months, it is believed the Commission intends to have conversations with Member States and if it becomes clear they would prefer to go even lower than that minimum rate, then the EC will look at what further reductions could be offered in the legislation.

The EC today also proposed two “Options” for countries to decide on in regards to changing how VAT is charged in the EC in its Action Plan. However, it is believed autumn’s legislation for e-publications will go ahead regardless of what happens with the "Options" for VAT rates for other sectors.

Stephen Lotinga, c.e.o of The Publishers Association, said: "Reducing VAT on e-publications would be a real step forward in bringing down the costs of reading and learning for many people.  It is good to see this issue raised in the Commission's Action Plan released today."

Federation of European Publishers president Pierre Dutilleul also welcomed the commission’s Action Plan. "Publishing is very much a 21st century industry and has been developing a strategy to bring books, in whatever format, to its readers and users," he said. "We are clearly satisfied that the commission has heard our arguments in the field of VAT."

The UK government has called for member states to have the option of charging a zero VAT rate for sanitary products after the issue attracted controversy. So far more than 300,000 people have signed a petition calling for so-called “tampon tax” to be scrapped. The zero-rate on products such as books was negotiated by the UK government when it entered the EU in 1973, but with the agreement that no new products or services could be zero-rated.

The two Options the EC is proposing for countries to consider are:

Option 1: all Member States will be able to cut rates on goods or services that are already included in the list. This would address the problem of unequal treatment. However, Member States would not be able to introduce completely new zero rates.

Option 2: The basic principle would be that Member States are free to adopt the rates level they want on their choice of goods and services, provided this does not create risks of unfair tax competition or unduly complicate the VAT system.

The EC said it has revealed an Action Plan on VAT because VAT is a major and growing source of tax revenue in the EU, but the current system is, however, “too burdensome and complex for businesses that wish to expand beyond the Member State in which they are established”. The current VAT system is also “too vulnerable to fraud when it comes to cross-border trade,” the EC said. Cross-border VAT fraud is estimated to be responsible for revenue losses of around €50bn annually in the EU.