Booksellers will be able to sell e-books with low VAT rates to match the discounts already applied to paper books under a change to EU tax law announced today (1 December).
Most EU countries, except Bulgaria and Denmark, allow paper books to be sold with discounted value-added tax rates. The average rate for paper books in the EU is 7.6%; for e-books that figure stands at 19.9%, according to the European Parliament’s in-house think tank.
The move to change VAT law to allow a lower rate for e-books comes after a back-and-forth disagreement between the European Commission, member countries and the European Court of Justice over whether e-books should be sold at the same rates as paper books.
The top court ruled in March that lowered VAT rates for e-books in France and Luxembourg were illegal.
Andrus Ansip, the EU’s digital policy chief, told reporters last week the court’s decision “was a message to us to intervene”.
Ansip said the VAT measures he announced today are “the last piece in the puzzle” following a series of legislative proposals this year to boost ecommerce, including changes to parcel delivery conditions and access to retailers’ websites across the EU.
The new proposal will allow but not require EU countries to apply lower rates for e-books, which currently make up only 5% of Europe’s bookselling market. The Commission predicts that will grow to a 20% share by 2021.
But e-book sales have already started to fall in some EU countries. The UK publishing association reported lower revenues from e-book sales in 2015 compared to the previous year.
Booksellers say they’re less optimistic about the growth in e-book sales, but hope that lower VAT rates could reverse the stagnating trend.
“VAT is probably one of the elements which might explain why the e-book market has been growing so slowly,” said Fran Dubruille, director of the European and International Booksellers Federation.
Dubruille says booksellers promote e-books mostly to cater to a small group of customers who prefer them, even though sales have floundered.
The Commission’s change to VAT rates for online publications will also affect digital news subscriptions.
“Whether you’re reading something on paper or electronically, a book is still a book and a newspaper is still a newspaper,” Pierre Moscovici, the EU tax commissioner, said today.
Moscovici said higher VAT rates for digital products are “no longer a reflection of the economy as it stands at the moment”.
The European Parliament has previously called for the Commission to allow lower VAT rates for e-books and online newspapers. MEPs and national governments will have to sign off on the executive’s proposal before it can become law.
The proposal also includes measures that aim to reduce VAT fraud that the Commission estimates could bring in an additional €7 billion each year in revenue.
The European Commission wants to set up a reporting website for online retailers to register VAT that automatically informs tax authorities in other EU countries if a company ships products there. The Commission says the online system could shave off up to 95% of ecommerce firms’ VAT registration costs. Businesses will also be able to report any annual online sales under €10,000 between EU countries as domestic sales, as part of an effort to reduce reporting obligations for companies that sell to consumers in other EU countries.
Another part of the proposal includes getting rid of an exemption in current EU tax law that allows companies outside the EU to not charge VAT for parcels worth less than €22 that are sent to customers in the bloc.
Ansip said more than half of those packages are purposely mislabelled. Fixing the rules so that VAT must be applied to those sales would shore up a hole of €5 billion each year, he told reporters.
The measures mark a further push in the Commission’s bid to tackle VAT fraud. Earlier this year, the executive announced new rules to make national tax authorities in a company’s home country responsible for collecting VAT and transferring the money to any EU country where the company ships goods. In March, the European Court of Auditors criticised the Commission for not doing enough to reduce VAT fraud.
Value-Added Tax (VAT) is one of the most important sources of finance for EU states, and represent over €700 billion of revenue per year. It is added to goods and services during transaction or payment.
The final consumer is the only person who pays VAT, while companies just collect it for the state.
To facilitate trade between states, companies can obtain a VAT exemption under certain conditions, when they operate outside their own borders. VAT fraud has become increasingly common on electronic products, metals, CO2 quotas and cars, causing a major headache for Brussels.