In line with its previous indications the European Commission launched a public consultation last week in relation to the review of the reduced VAT rates. The public is invited to give their opinion on certain reduced VAT rates to see if they efficiently serve the purpose what they were created for.
The consultation forms part of the Commission’s VAT reform plans to build “a simpler, more robust and efficient VAT system”. And Commission is asking business for their input to this matter. It is your chance to have a saying in the much aniticpated reform of the EU VAT system.
Algirdas Šemeta, Commissioner for Taxation, Customs, Anti-fraud and Audit, was quoted to say:
“It is high time that we take a fresh look at reduced VAT rates. Member States need new revenue sources, while businesses need simpler tax systems with fewer compliance costs. Today we are asking whether certain reduced VAT rates are delivering what they seem to promise, or whether they pose more problems than they are worth.”
As part of the public consultation the stakeholders are asked to consider the following:
- Whether any of the existing VAT rates distorting the competition in the EU (e.g. ebooks vs. paper books argument),
- Whether certain reduced VAT rates (in the field of energy, housing, waste management and water supplies) are to the contrary of EU policies,
- How similar goods and services should be treated for VAT purposes considering the technological developments.
For the readers of this blog one possible area that matches the description is the difference in the VAT treatment between printed books and newspapers vs. ebooks and digital newspapers.
Printed books and newspapers are treated as goods and are in many EU countries subject to the reduced VAT rate (even 0% in the UK), while ebooks and digital newspapers are regarded as eservices that should be taxed at the standard rate (up to 27% in Hungary). Does this distort competition between “regular” and ebook traders?
Current position of the European Commission
The current opinion of the European Commission is that this is not the case. Below answer was provided by the Commission to the question whether the EU VAT legislation ensures neutrality between traditional and electronic media:
“Yes. The standard rate of VAT also applies to the vast majority of content supplied via traditional media – music, software, video, etc. – so there will be no issue of discrimination compared with electronic media which under the Directive is taxable at the standard rate in all Member States.
Current VAT legislation permits reduced rates of tax (or in some cases a zero rate) on printed material. Books, newspapers and periodicals are amongst the most common items to which Member States apply reduced rates.
But it is by no means clear that digital information services are the direct equivalent of traditional printed products – even where the content is similar, the additional functionality (e.g. search facilities, hyperlinks, archives) increasingly associated with electronic content produces a fundamentally different product. …”
This position has been in greater detail also presented in this article.
It could be of course also argued that books and newsletters in both paper and electronic format serve the same purpose (be it education, entertainment etc.) and as such they are similar in nature, yet they are subject to different VAT treatment. One may wonder of fiscal neutrality implications, which is one of the basic VAT principles. It implies that goods or services that are the same or similar in nature should be treated the same to avoid distortion of competition (e.g. between traditional and “new age” publishing companies or traders). Indeed this was one of the arguments used by France and Luxembourg when they unilaterally decided to apply the reduced rate to the ebooks and also discussed in this article.
However, there is also the second part to the above answer provided by the European Commission:
“The Commission, in fact, is due shortly to present a proposal for a global revision of the reduced rates of VAT. The objective will be to simplify and ensure a more uniform application of VAT and thus improve the functioning of the Single Market. The proposal will aim to eliminate potential distortion of competition by giving all Member States equivalent opportunities to apply reduced rates in certain areas and by rationalising the various derogations in terms of rates that exist at present.”
There was already a “Green paper” on future of the EU VAT system published by the European Commission at end of 2010, which did mention the possible adjustment of the VAT rates in the future in order to “reset” the neutrality between different media. This resulted in the consultations on the future of the VAT system in the EU with many activities taking place in 2011-2012.
The current consultation is being carried out at about the right time – this topic is a very relevant concern of industry players and Member Stats alike. Just think of the recent measures proposed by France and Luxemburg to tax ebooks at the reduced rate, to the contrary of the EU rules and the European Commission’s response to these. Further, France has recently announced its decision to further reduce the VAT rate for ebooks from 7% to 5,5% as of 1 January 2013.
Unfortunately, whatever the outcome of the consultation will be, it is not expected that the new VAT rates will be introduced in the EU before 2015.
While we have limited ourselves in this article to examples of taxation of books and newspaper vs. ebooks and digital newspapers, you are encouraged to propose different treatment for any kind of good or service – as long as you can provide convincing arguments in your favor. You can submit your comments, concerns, views and recommendations until 4 January 2013 as outlined here.
I am convinced we will discuss this opportunity in great detail also during our next meeting of the B2C 2015 Working Group, which is taking place in Brussels on 24 October 2012.
If you are an ebusiness or ecommerce company and are not already member of this group I encourage you to contact Sophie Claessens for further details on how to register.