Brussels will take a step towards adjusting its arcane VAT rules to the digital age by allowing reduced rates of tax on ebooks.
The treatment of digital publications has been at the centre of a squabble between the European Commission and France, which found itself hauled before the EU courts in 2013 after it tried to apply its low VAT rate for paper books to their electronic equivalents.
Brussels argued at the time that it was bound, albeit reluctantly, to uphold the law, which only allows VAT lower than the EU’s standard 15 per cent rate on a pre-agreed list of products and services. Ebooks were not eligible, it said, as they counted as “electronically supplied services”. Luxembourg was also brought before the courts on the same issue.
Pierre Moscovici, the EU tax commissioner, confirmed on Saturday that the commission would propose legislation to address the matter, saying there was a need to recognise that ebooks “are books”.
The proposal will be made “in the weeks to come,” he said. It would then need approval from national governments to become law.
As well as ebooks, digital newspapers would also become eligible for reduced rates, he said. The change would give each national capital the right to bring down VAT rates close to zero if they wished.
The move is an early step in a commission strategy, announced in April, to overhaul EU VAT rules to give national governments more flexibility in the rates they set.
VAT is one of the only taxes where there is significant harmonisation by the EU. The current system of rules has faced increasing criticism that it is cumbersome and ill-adapted to the evolving 21st century economy.
A particular concern is that the centrally managed EU list of products and services eligible for reduced rates has been little changed since the 1970s, in part because updates have to be agreed unanimously by governments.
Even reduced VAT rates are not normally supposed to fall below 5 per cent, although there are some exemptions built into the EU rules.
The current restrictions were at the centre of a political storm in the UK this year over the so-called “tampon tax” — the VAT rate paid on sanitary products.
Examples of reduced rates that are applied at present include British holidaymakers paying zero VAT on certain caravans and houseboats, while the Irish benefit from a 9 per cent rate on admission to amusement parks. The Netherlands applies a reduced rate on bicycles.
Author: Jim Brunsden