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Legal innovation in Industry 4.0




Ecofin allows reduced VAT rates for e-books

Maria Teresa Deltell, principal associate at Tax department.

On October 2, the Economic and Financial Affairs Council (Ecofin) adopted a political agreement on the proposal for a directive enabling member states to apply the same VAT rate on e-books and e-publications as for their printed equivalents.

The proposal is, according to the Council, part of the European Union’s overall efforts to modernize VAT for the digital economy within its digital single market strategy.

The national laws of some states such as Luxembourg and France had in the past set out the same VAT rates for electronic publications as for their printed equivalents. Those laws, however, were held contrary to EU law by the Court of Justice of the European Union (judgments dated March 5, 2015, regarding cases C-479/13 and C-502/13).

Specifically, the Court of Justice of the European Union (CJEU) determined that France and Luxembourg could not apply a reduced VAT rate for the supply of electronic books in the same way as they could for printed books.

The definition of electronic (or digital) book handled in the cases examined by the court encompassed both books supplied for consideration by download or streaming, and books in electronic format that can be viewed on a computer, a smartphone, electronic book readers or other reading system.

The court recalled in its judgments that the member states could only apply reduced rates to supplies of goods and services in the categories set out in annex III to the VAT Directive (2006/112/EEC), which did mention books “on all physical means of support”, but this was not allowed under any circumstances for electronically supplied services.

While admitting that physical support (such as a computer or tablet) is required to be able to read an electronic book, insofar as that support is not included in the supply of electronic books the CJEU held that it does not fall within the goods and services contained in annex III to which the reduced rates may be applied (before the approval of the new wording).

In any event, the CJEU added, because transactions of this type must be classified as a supply of services not of goods, by applying the reduced rate of VAT to these transactions France and Luxembourg had failed to fulfill their obligations under the VAT Directive, which, as discussed above, excluded electronically supplied services from the reduced rate.

The new wording of the directive, however, (set to enter into force within twenty days after its publication in the Official Journal) will allow the reduced rate to be applied to electronically supplied publications.

The application of a reduced rate will in any event be optional for the member states and only available for those which on January 1, 2017 applied reduced rates to the supply of printed publications.

The supply of music and downloaded video content will continue (as will all the other electronically supplied services) to be subject to the standard VAT rate.

The same occurs with publications “predominantly” consisting of music or video content. For these purposes the directive sets out that member states would have the discretion to specify the term “predominantly” in their national VAT law.

These are nevertheless temporary measures until approval is given to a new rates structure which is currently under discussion.