EU finance ministers reached an agreement on Tuesday (2 October) to allow willing member states to apply reduced VAT rates or even scrap taxes on electronic books and digital press.
Following two years of debates among the national governments, the Ecofin Council backed matching the taxation imposed on digital formats to the lower rates applied to standard books and press. In countries like Spain, digital publications pay 17% more than hard copies.
“An electronic book is a book, a digital newspaper is a newspaper! Good news for the press and the cultural sector,” the Commissioner for economic affairs and taxation, Pierre Moscovici, wrote on his Twitter account.
The Commission made the proposal two years ago, an idea particularly championed by France.
Although member states welcomed the plan in order to support the media and cultural sector, the proposal found a few hurdles at the Council’s table.
The final green light came only after the Czech Republic lifted its veto, as part of a broader agreement to reform the VAT system.
“This proposal is part of our efforts to modernise VAT for the digital economy, and enables us to keep pace with technological progress,” said Austrian Finance Minister Hartwig Löger, whose country holds the Council presidency
Member states can now decide whether they want to apply reduced, super-reduced or zero VAT rates, compared to the minimum 15% they have to impose currently.
For physical publications – books, newspapers and periodicals – member states currently have the option of applying a ‘reduced’ VAT rate, i.e. minimum 5%. Some have been authorised to apply ‘super-reduced’ VAT rates (below 5%) or ‘zero’ rates (which involve VAT deductibility).
Super-reduced and zero rates will only be allowed for member states that currently apply them to physical publications.
European Commission vice-president for the euro, Valdis Dombrovskis, recalled that member states hold “very different approaches” when it comes to VAT, as some of them have “a very restricted use” of the reduced rates.
He added that these new rates would be applied temporarily until the ‘definitive’ VAT system is approved. The new system, proposed by the EU executive last autumn, would give member states greater flexibility to set VAT rates.
The new system was put forward to improve VAT collection. Today, around €150 billion in VAT revenues are lost every year due to fraudulent practices.
In the meantime, the EU’s finance ministers also approved on Tuesday a series of “quick fixes” to improve VAT collection while the co-legislators agree on the definitive system.
At the same time, the ministers agreed on allowing member states most affected by VAT fraud to temporarily apply a generalised reversal of VAT liability.
This so-called generalised ‘reverse charge’ mechanism involves shifting liability for VAT payments from the supplier to the customer, as requested by countries particularly affected by VAT fraud.
Löger said that the Council is ready to start the discussions on the ‘definitive’ VAT regime, but warned “it will take some time” to reach an agreement.