France: VAT reduced on e-books as of 1 January 2012

As of 1 January 2012 e-books sold in France will be cheaper due to a lower VAT rate. They will be taxed with 5.5% instead of 19.6%. This will make the France the cheapest country to sell e-books in the whole EU. It might be interesting for e-publishing companies to consider to relocate their e-book stores to France to benefit from the low VAT rate for their EU wide e-book sales.

According to new article 278 bis 6° of the French Tax Code (implementation of article 98.2 of the VAT Directive EC/112/2006), the French VAT reduced rate at 5.5% is applicable to books, whatever their physical support and including books provided by electronic means. This new provision will be applicable in France to all transaction for which the tax point occurs as from 1 January 2012.

In other terms, French VAT reduced rate of 5.5% will be, from a French legal standpoint, applicable to the sale of e-book as from 1 January 2012.

The main issue is whether this new provision could be considered as not being in-line with Article 98.2 of the EU VAT Directive above mentioned which clearly specifies that VAT reduced rate is not applicable to services provided by electronic means.

Therefore, at this stage, French Government is trying to convince the EU Commission and the other Member states that an e-books remains a book, even if provided by electronic means. Relevant arguments could be notably that:

  • From the consumer point of view and notably by reference to the “Car Protection Plan ECJ Case”, the latter purchases a book and not the downloading of a service.
  • The VAT reduced rate is applicable to intellectual content (i.e., product of mind), so that it should be applicable to the books whatever their physical support or the way of marketing (i.e., shop, downloading…).
  • An e-book is not strictly speaking a service provided by electronic means, but rather the sale of the right to consume a content.

Today, we have no idea of the final decision of the EU Commission but one point has to be underlined: since the French regulation allows the application of the VAT reduced rate to the e-book, the operators will certainly apply it as from January 1, 2012 in France, creating competition between the providers at an EU level (at least until the 1st January 2015, when the new territoriality rules on electronic services will enter into force).

The French story of the e-book should be therefore followed and at least regarded as a temporary opportunity for e-book publishers.