EU: VAT treatment of digital newspapers vs. their paper version

The European Parliament has in September 2011 published answers to questions of the European Parliament concerning the VAT rate of on-line newspapers and magazines. They have addressed the issue that the digital version of newspapers and magazines is taxed at the higher VAT rate then their paper version although the content is more or less the same.  This is one of the items which should be further discussed and addressed in the intended reform of the EU VAT system.

Questions to European Commission

“Various EU Member States apply reduced rates of VAT or even a zero rate to newspapers and magazines. This is very much bound up with the importance of news reporting to a democratic society. However, if the same information is supplied on websites or in a digital version, it is subject to VAT at the normal rate. It is argued that the difference is justified because of the distinction between supplying goods and rendering services.

In the light of the Digital Agenda and the development of a genuine knowledge-based economy, ought this distinction still to be maintained?

Would it not be desirable to eliminate the difference in treatment between off-line and online news reporting, making digital newspapers and magazines likewise subject to a reduced rate of VAT, so that equal competition can be ensured between paper and digital news reporting?

As news reporting is an activity of general interest, ought it not to be eligible for exemption from VAT under Article 132 of Directive 2006/112/EC?”

Answers from EU Commission

The answer given by Mr Šemeta, European Commissioner for Taxation and Customs Union, on behalf of the Commission was:

“As the Honourable Member correctly explains, pursuant to the EU VAT rates rules currently in force, a majority of Member States apply reduced rates of VAT to newspapers and magazines. Whereas zero rates and reduced rates below the allowed minimum of 5% constitute exceptions to the general rules on VAT rates, they form part of temporary derogations granted to certain Member States on the basis that such rates were in force before 1st January 1991, and continue to be limited to the goods to which they were applied at the time.

The difference in taxation of on-line publications (standard rated today) as compared to hard copy publications (reduced rate possible today), is not only the result of the difference in their qualification for VAT purposes, but also in their nature and functionalities. The supply of online newspapers as well as of on-line periodicals qualify as electronically supplied services to which the reduced rates shall not apply according to the second subparagraph of Article 98(2) of the VAT Directive.

It should be underlined that – according to the EU VAT rules currently in force – any material wholly or predominantly devoted to advertising is explicitly excluded from the scope of the reduced rates. Considering the economic importance of on-line publications to the advertising industry with its more sophisticated technical possibilities (pop-ups etc.) in comparison to paper-printed products, a coherent application of reduced rates to on-line products would be more difficult from a practical perspective and thus burdensome for taxpayers and tax administrations.

To take account of new socioeconomic realities and technological developments, which certainly give rise to new challenges in the VAT area, on 1 December 2010 the Commission adopted a consultative Green Paper (COM(2010) 695). This Green paper is also intended to initiate a general reflection on the level of future tax harmonisation and will be the appropriate format for all stakeholders to be involved and give input. The reflection should thus include the concerns raised by the Honourable Member.

The inclusion of the supplies of newspapers and periodicals in the list of exemptions for certain activities in the public interest in Article 132 of the VAT Directive is not conceivable at present. As already mentioned VAT as a general consumption tax should, in principle, be levied on all taxable supplies of goods and services. Any extension of the scope of exempted transactions therefore represents an obstacle to a neutral and well-functioning VAT system.

Moreover, it should be noted that, in falling under this exemption, the publishers would in principle no longer have a right to deduct the VAT paid at the preceding stage, notably on their investments, equipment and general expenses. VAT becomes in that case a cost factor and therefore a disincentive to investment and outsourcing of activities which could often more efficiently be performed by specialised providers.”

It is interesting that, whilst the Commissioner rules out the reduced rate and exemption under current EU law, he indicates that the liability of newspapers and magazines should be considered as part of the Green Paper on the future of VAT.

What does this means for you?

This item remains a hot topic within the EU in respect of the applicable VAT rates. However, it seems it will not be regulated through the EU VAT Directive, at least in short term. Some countries decided to address the issue by their own, e.g. France, which decided to tax the e-books with a reduced VAT rate as of 1 January 2012 no matter what the European Commission thinks about this. We will observe with interest how the European Commission and other EU countries will react to this – some might choose to challenge France and some might decide to follow it example and treat books ans books regardless of the medium.

If you are an EU based publishing company or retailer/internet platform publishing, distributing or selling e-books you might be interested in speaking to your governmental representatives about the possibility to introduce a reduced rate for e-books in your country as well.

Further, no matter if you are an EU or non-EU company you might consider to open a local  subsidiary in France and sell the e-books from the to all your EU customers – as France will with the 1 January 2011 become the cheapest place to sell the e-books in Europe.

Drop us a mail and we will be happy to discuss this with you.