As reported, France and Luxembourg have started to apply reduced and super reduced VAT rates to ebooks without obtaining an approval from the rest of EU. This gave them competitive edge over the rest of the EU countries, as companies which were selling ebooks to their EU B2C customers from those two countries could sell them at the lowest available VAT rates (3% for sales from Luxembourg and 5% for sales from France). This (in words of Commissioner Šemeta, responsible for taxation) “runs counter to the fundamental EU principle of fair tax competition.”
The EU Commission started with the infringement procedure last year (essentially asking France and Luxemburg to either return to tax the ebooks at standard VAT rates). France and Luxemburg have not reacted to the EU Commissions request in a way the Commission wanted them to and therefore the Commission has now referred both countries to the Court of Justice of the European Union (“ECJ”).
With the speed this is developing, ECJ might actually issue its judgement before 1.1.2015 – when the new EU VAT rules for B2C eservices will render local rules of France and Luxembourg irrelevant in any case.
For some more information refer to the Press release of the EU Commission.
What does this mean for you?
If your company is selling ebooks from France or Luxembourg there is nothing to worry yet. Until the ECJ will not officially rule otherwise and France and Luxemburg will adjust their VAT rates for ebooks you are probably on the safe side.
However as it is becoming clear that the ECJ judgement will most probably be published in 2013 or 2014 you might wish to reconsider your long-term sales and pricing strategy.