Luxemburg – e-books are subject to the standard VAT rate as of 1 May 2015

The Luxemburg tax authorities were rather quick to the react on the ECJ’s recent decision on the VAT treatment of e-books. As reported in our previous post, in the infringement procedure against Luxemburg and France the court held that these countries incorrectly applied reduced VAT rate to the sale of e-books.

It is confirmed in a “Circular” published by the tax authorities on 16 March that Circular 756 is revoked with effect from 1 May 2015, and as of that date the standard VAT rate of 17% should be applied to the sale of e-books. (Please refer to the news update on PwC’s GlobalVATOnline.)

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Argentina – Turnover tax regime for digital supplies suspended by the Tax Authority of Buenos Aires for an indefinite period

The Tax Authority of Buenos Aires (AGIP) has established a new turnover-based (i.e., provincial sales tax) withholding tax system for foreign suppliers of e-services to Argentinian private consumers located in Buenos Aires (B2C supplies).
According to initial provisions of the new regime, effective February 1, 2015, withholding agents (Argentine credit card companies) that collect payments for such services should withhold 3% turnover tax from the payments made by final consumers to the non-resident service providers. Credit card companies have, however, formally asked the AGIP for additional time to make the necessary amendments to their systems, enabling them to identify whether the payments relate to taxable services to be used in Buenos Aires. As a result, the AGIP has postponed the enactment of the new regime until withholding agents can adequately modify their systems to be able to collect the tax.

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E-books – ECJ rules reduced VAT rate is not applicable

The ECJ today delivered its long awaited judgments on the infringements procedures against France and Luxemburg on the application of the reduced VAT rates to e-books.

The court held that, in line with the VAT Directive and Implementing Regulation, e-books qualify as electronically supplied services, and as such reduced VAT rates cannot be applied. Therefore, the VAT treatment of printed books (or more precisely, “books on of all physical means”, according to the VAT Directive), which are taxable at the reduced VAT rate in most EU countries, cannot be extended to e-books. In this respect, the ECJ also quoted its previous decision in the Finnish K Oy case, in which the court decided that the reduced VAT rate may be used for the sale of books on CDs or USB siticks, as these are “physical means”.

Accepting the ECJ’s argumentation and strict interpretation of the relevant legislation, the only option to use the reduced VAT rate for e-books as well, is to change the legislation. This is likely to be done as part of an overall review of the VAT system, which will be a longer process.

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India – Invite to the webcast on the Indian Union Budget 2015 – 4 March 2014

The government in India announced its Budget (including tax and policy proposals) on February 28, 2015. As this is stated to be the first serious Budget for the new government after being elected 8 months ago, the government likely will push through significant policy measures to revive economic growth and boost foreign investment. There is also high expectation from foreign investors and multinational companies for the government to address several long standing and pressing tax issues.

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Partial revision of the VAT Law in Switzerland – Lower VAT registration threshold for e-service providers is proposed

The Swiss Federal Council has published its commentary to the partial revision of the VAT Law. If the draft legislation is approved by the Swiss parliament, the changes will come into effect on 1.1.2016. Among other changes we set out below those which are most relevant for ebiz & e-commerce.

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USA – Texas comptroller finds software licensed to Texas customers created nexus for sales and use tax purposes

The Texas Comptroller of Public Accounts has recently determined that electronically downloaded software licensed by a Utah corporation to Texas customers constituted physical presence in Texas sufficient to establish sales and use tax nexus. According to the decision, nexus was established because the software was characterized as tangible personal property and the Utah corporation retained all property rights in the software, which was physically present and generating revenue in Texas. The Comptroller upheld an Administrative Law Judge (ALJ) determination that the corporation had an obligation to charge and collect use tax from customers, and denied refund claims of sales tax paid and an interest waiver. [201409970H; SOAH Docket No. 304-13-5657.26; CPA Hearing No. 106,632, Texas Comptroller of Public Accounts (9/19/2014)]​

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Online shopping – PwC’s Total Retail Survey 2015

Fifteen years ago, in the heyday of the e-business boom, Internet promised to change industries and business models very quickly, first of all in the retail sector. When these promised changes did not realise that quick, it resulted in the burst of the dot-com bubble.

However, even if change took longer than expected, now it is already part of our lives and not only in the developed countries, but all around the world. New online business models have a disruptive effect on long established businesses, as the fate of firms, such as Blockbuster, Borders and quite recently, RadioShack shows.

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Finland – Supreme Administrative Court decision on the VAT treatment of non-printed books after the ECJ decision (K Oy – C-219/13)

2015 seems to start with book related VAT news in the EU. After the ECJ’s judgment in the K Oy case (C-219/13) which we previously discussed, the Finnish Supreme Administrative Court (“SAC”) delivered its ruling at the end of December. The SAC held that the standard Finnish VAT rate (currently 24%) applies to books on other physical means of support such as a CD, CD-ROM or memory stick.The ECJ left it to the national courts to decide whether fiscal neutrality (i.e. the same VAT treatment) is applicable to printed books and books published on other physical means. Even though the ECJ judgment also appreciated that this can also be impacted by the level of penetration of new technologies in the various EU Member States.

The SAC followed the argumentation of the ECJ and held that books on other physical means of support are not similar to printed books. According to the Finnish court the other physical means do not satisfy the same needs of the average consumer and therefore they cannot be subject to the reduced VAT rate. The SAC argues that books on physical means of support have a closer link to e-books downloadable from the internet, to which reduced VAT rates cannot be applied based on the EU legislation. As a result the SAC concluded that the different VAT treatment of printed books and books on other physical means of support does not offend the principle of fiscal neutrality.

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