EU Court: E-Books Cannot Be Taxed the Same as Paper Books

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On March 5, the European Union’s top court ruled that EU countries must charge the full value-added tax (VAT) on e-books and that e-books are not subject to the same tax reductions as physical books, according to media reports. The court ruled that it considered e-books to be a service, as reported by PC World.

In January 2012, France lowered the VAT on e-books to 5.5 percent from 20 percent, and Luxembourg lowered its VAT to 3 percent from 17 percent, the same rate as books, as reported by the Wall Street Journal. However, in its recent ruling the European Court of Justice declared that both countries must charge the full VAT rate on e-books. In 2013, the EC sued France and Luxembourg for breaching the VAT Directive.

In the ruling, the court wrote that a reduced rate of VAT “can apply only to supplies of goods and services” and that the “VAT Directive” refers “in particular to the ‘supply of books … on all physical means of support.’” The Court concluded that the reduced VAT rate is applicable only to a transaction involving books on a “physical medium.”

“While admittedly, in order to be able to read an electronic book, physical support (such as a computer) is required, such support is not included in the supply of electronic books,” the Court explained, adding that the VAT Directive “excludes any possibility of a reduced VAT rate being applied to ‘electronically supplied services’” and so ruled that the supply of e-books is a service. Under EU Law, reduced VAT rates can only be applied to goods, not services, WSJ noted.

Both France and Luxembourg stated that they will comply with the verdict, but both also reiterated their belief that e-books should be taxed the same as physical books. Both countries are expected to push the European Commission to revise the law.

France and Luxembourg must now raise the VAT on e-books to the full VAT rate as quickly as possible, according to PC World, which noted that the European Commission is planning to change the law so that e-books can be sold with a reduced VAT similar to paper books. 

In a statement, the European Commission’s taxation and customs spokeswoman, Vanessa Mock, stated: “The Commission appreciates that member states may want to define their own priorities, including on culture policy, in their taxation policy. This should be done within the EU legal framework. This is why the Commission will address this matter through the extensive overhaul of the VAT system which is currently being prepared. We hope to be able to communicate on this next year.”