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.
What does it mean for you?
This is clearly bad news for e-book publishers in France and Luxemburg. The two countries are required to change their national legislations and apply the standard VAT rate to the sale of e-books. When these rules will become effective e-book sellers will need to review the pricing of their e-books or absorb the additional cost which is caused by the application of the standard VAT rate.
On a separate note, it is yet to be seen whether Italy, where the reduced VAT rate on e-books is only effective as of January 2015, will take any action in light of this judgment.