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.”
As discussed before, France and Luxemburg decided to apply the reduced VAT rate to ebooks, most likely also to attract publishing companies to their countries. As this treatment does not comply with the applicable EU rules, the EU Commission initiated the appropriate action against these two countries.
As Switzerland is not part of the EU, EU VAT rate restrictions do not apply. According to the Swiss Parliament’s website the “Bundesrat” is requested to consider the application of the reduced VAT rate to ebooks, as part of the ongoing review of the VAT legislation.
It appears that Swiss legislators would like to remove the distinction in VAT treatment which exists between paper books and ebooks.
What does this mean for you?
If you are involved in publishing or distributing ebooks, you should also monitor the Swiss ebooks and eservice developments. As you might be already aware you are required to register for VAT in Switzerland if your B2C sales to Swiss residents exceed CHF 100’000 in a single calendar year.
As you are probably aware, France and Luxembourg have on 1 January 2012 started to tax the sales of ebooks at reduced VAT rate instead of applying the standard VAT rate. This means that ebusinesses selling ebooks through a sales entity in Luxembourg were able to tax them at 3% rate instead of 15% and in France at 7% rate (5,5% as of 1 January 2013) instead of 19,6%.
The EU Commission in its role of the guardian of the EU Treaties and legislation does not agree with the unilateral decision of France and Luxembourg and has therefore initiated a formal infringement procedure and has in July 2012 send them a Letter of Formal Notice.
A very good and conveniently brief explanation on the infringement procedure and its implications can be found here.
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.
As reported previously here, here, and here, France and Luxembourg have unilaterally decided to tax e-books at a (super)reduced VAT rate. They decided to tax them as “normal” books instead as e-services as they should be treated by the letter of the EU VAT Directive. This gave e-book traders established in France and Luxembourg a considerable advantage when selling e-books to their EU customers compared to e-book traders in other EU countries as it made the e-books in France and Luxembourg approx. 12% cheaper than before (reduction to a 3% super-reduced VAT rate instead of the standard rate of 15% in Luxembourg and to 7% instead of 19.6% in France).
Luxembourg is currently probably the nicest place to establish an e-business sales entity in the EU (“e-hub”) and this will probably not change before y2015. This is due to several reasons: Find out more
The Luxembourg VAT Authorities have issued a Circular stating that no distinction should be made between books on physical and electronic means, meaning that the super-reduced 3% rate already applicable to books should also apply to e-books. The Circular is effective as of 1.1.2012 (read more). It seems to us that Luxembourg has adopted this position as a response to France’s recent decision to adopt the reduced rate of 7% for e-books published by companies based in France (read more), even though Luxembourg officials claim that it is based on the content of the “Green paper” on future of the EU VAT system, which is actually aiming to plot the future of the EU VAT system (and not current VAT legislation).
Find out more
The Luxembourg VAT Authorities have issued a circular (Circular 756 of 12 December 2011) stating that for books, no distinction between physical and electronic support should be made, therefore the super-reduced 3% VAT rate already applicable to books should also apply to e-books.
Find out more
The French Prime Minister announced recently that from 1 January 2012 the reduced VAT rate for “standard reduced articles” is expected to be increased from 5.5% to 7% (subject to Parliamentary approval). This change will affect among others also the sales of all e-books in France; as we have reported previously France intends to sell the e-books at reduce rate as of 1 January 2012.
Find out more