Refusal of the application of the reduced VAT rate to the distribution of eBooks


The European Court of Justice (ECJ) by the press release number 30/15, established its policy regarding the VAT rate applicable for e-books. This press release is based on the judgments of the same court dated March 5, 2015, regarding Cases C-479/13 and C-502/13.

The Court states that France and Luxembourg cannot apply a reduced VAT rate to the distribution of e-books, unlike what happens with books on paper format.

Since January 1st, 2012, France and Luxembourg respectively apply VAT rates of 5.5% and 3% to the distribution of eBooks.

The concept of electronic (or digital) Book covers both books distributed for consideration by downloading or viewing online (streaming) from a website such as books electronic format that can be viewed on a computer, smart phone, e-reader or other reading system.

By applying a reduced VAT rate to the distribution of electronic books, France and Luxembourg have failed to fulfil its obligations under EU VAT Directive.

The ECJ noted that the reduced rates would only apply to supplies of goods and services of the categories listed in Annex III of the EU VAT Directive. This annex mentions, in particular, the supply of books in any physical means. The ECJ concluded that the reduced VAT rates apply to operations consisting in the distribution of books that are in a physical format. While it is true that in order to read the e-book needs a physical medium (such as a computer), such format is not included in the distribution of electronic books, so this is not within the scope of Annex III.

Moreover, the Court notes that the VAT Directive precludes any possibility of applying a reduced VAT to ‘electronically supplied services’ type. In the Court’s view, the distribution of electronic books would be considered as a service but not as a supply of goods.

The Commission also criticizes Luxembourg to apply a reduced rate of VAT of 3%, when the VAT Directive prohibits, in principle, VAT rates below 5%. The ECJ recalled that, under the VAT Directive, a Member State may apply reduced VAT rates below 5% provided in particular that the reduced rates are in accordance with European Union legislation. Since the Court has determined that the application of a reduced rate of VAT to the supply of e-books type does not conform to the provisions of the EU VAT Directive, the requirement for compliance with EU law, so is not satisfied that Luxembourg may not apply a reduced rate of VAT from 3% to supply electronic books.

The judgments of the ECJ do not preclude Member States provide for a reduced VAT for books on physical media such as books printed on paper format.

NOTE: The appeal for infringement against a Member State that has failed to fulfil its obligations under the EU law, may be brought by the Commission or by another Member State. If the ECJ states that there is non-compliance, the Member State concerned must comply with the provisions of the judgment as soon as possible.

If the Commission considers that the Member State has failed with the fulfilment of the judgment, it may bring a further action seeking financial penalties. However, if they have not informed the Commission of the measures taken to transpose a directive, the ECJ on a proposal from the Commission, may impose sanctions in the first judgment.

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