friday, 6 march of 2015

EU Court Rules E-Books Are Services, Not Goods

Electronic books cannot benefit from the same reduced rate of value-added tax as paper books, the top court of the European Union ruled on Thursday. But the European Commission signaled it may change the rules next year to allow for equal taxation of books in any form.

Since 2012, France has applied a value-added tax, or sales tax, of 5.5% on e-books and Luxembourg has applied a 3% VAT rate, the same rate for paper books. The European Court of Justice said both countries must apply to e-books their normal VAT rate, which is 20% for France and 17% for Luxembourg.

In 2013, the European Commission sued France and Luxembourg for being in breach of European Union VAT rules, and its position was upheld by the Luxembourg-based EU court.

At that time, U.S.-based Inc., which has operations in Luxembourg, was applying the 3% rate to sell e-books throughout Europe. Since January, value-added tax for e-services is levied based on the country where the customer is located.

In its ruling Thursday, the court argued that a reduced rate can apply only to physical books and that even though e-books can be read on tablets and computers, they should be considered “electronically supplied services,” not goods. According to EU law, reduced VAT rates can apply only to goods, not e-services.

France and Luxembourg said they will comply with the verdict, but that they will push for an overhaul of EU rules on VAT to align rates between physical books and e-books.

“Luxembourg is of the opinion that consumers should be able to buy a book with the same VAT rate, be it online or in bookstores. We will continue to advocate for adapting the EU legal framework to technological advancement,” the Luxembourg finance ministry said in a statement.

The French government took a similar stance. “We will continue to push for what is called technological neutrality, meaning the same taxation for books, irrespective if they are on paper or electronic,” French Culture Minister Fleur Pellerin told radio station France Inter.

“We think that a 20% VAT rate may stifle innovation for e-books. France will continue, together with other countries, to ask for a revision of the VAT Directive which sets out these exceptions,” she added.

(Published by The Wall Street Journal - March 5, 2015)

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