European ping pong for e-books
Following the amendments introduced by Directive 2018/1713 of 6 November 2018 to Directive 2006/112 of 28 November 2006, European Union (EU) Member States are now allowed to apply the value added tax (VAT) rates they apply to printed publications to the marketing of periodicals and books distributed online. However, as we will see at the end, the rate applicable to e-books is not at all clear.
Until this amendment in 2018, Article 98 of the Directive of 28 November 2006 on the common system of value added tax provided that “reduced rates shall not apply to services supplied by electronic means”. At the same time, however, Annex III to the Directive provided that a reduced rate of VAT could apply to “the supply of books on any physical medium … newspapers and periodicals, excluding material wholly or mainly devoted to advertising”. EU Member States were therefore allowed to apply a reduced VAT rate to various printed publications, which constitute “goods”, but not to the same titles and content accessible online, which fall under the category of “services”.
However, not all EU Member States have always complied with the requirements of the November 2006 Directive. Before they were allowed to do so, France and Luxembourg in particular applied reduced VAT rates to books and online press services, which was obviously illegal. The Court of Justice of the European Union has had to rule several times on this issue. In particular, it was held that, “by applying a reduced rate of value added tax to the supply of digital or electronic books”, the French Republic and the Grand Duchy of Luxembourg had “failed to fulfil their obligations” (CJEU, 4th c., 5 March 2015, Commission v. French Republic, Case C-479/13; CJEU, 4th c., 5 March 2015, Commission v. Grand Duchy of Luxembourg, Case C-501/13).
But much more importantly, the ECJ ruled on 5 March 2015 that by applying a reduced rate of VAT to the supply of e-books, the French Republic had failed to fulfil its obligations under Articles 96 and 98 of the VAT Directive.
Under the old VAT Directive, Member States could apply a reduced rate of VAT to printed publications such as books, newspapers and periodicals. Digital publications, on the other hand, were to be subject to the standard rate of VAT, with the exception of digital books supplied on a physical medium (e.g. CD-ROMs). In case C-390/15 Rzecznik Praw Obywatelskih (RPO) the Polish Constitutional Court, seized by the Polish Ombudsman, doubted the validity of this provision. It wondered, on the one hand, whether this tax difference was compatible with the principle of equal treatment and, on the other hand, whether the European Parliament had been sufficiently involved in the legislative procedure. ( C-390/15RzecznikPrawObywatelskichRPO) )
In her Opinion, Advocate General JulianeKokott concluded that the VAT Directive is valid in so far as it reserves the application of the reduced rate of VAT to printed books, newspapers and periodicals and to digital books supplied on a physical medium.
The CJEU has just issued a decision confirming the conclusions of the Advocate General.
“It must therefore be held that Article 98(2) of Directive 2006/112 as amended, read in conjunction with point 6 of Annex III to that Directive, which has the effect of excluding the possibility for Member States to apply a reduced rate of VAT to the supply of digital books by electronic means, while authorising them to apply a reduced rate of VAT to the supply of digital books on any type of physical medium, does not infringe the principle of equal treatment, as set out in Article 20 of the Charter”, the Court emphasises. ). On the other hand, it validated Polish legislation which applied a different rate of VAT to publications (periodicals and books) marketed in the form of “goods” and to those marketed by way of a “supply of services”.
Since the directive of November 2018
The Directive of 6 November 2018 considers that Member States should be allowed to align the VAT rates for publications supplied by electronic means with the lower VAT rates applied to publications supplied on any type of physical medium.
However, it states that “in order to prevent massive recourse to reduced VAT rates for audiovisual content, Member States should be allowed to apply a reduced rate to books, newspapers and periodicals, but only if these publications, whether supplied on a physical medium or by electronic means, do not consist wholly or predominantly of music or video content”.
Article 98 of the 2006 Directive states that “reduced rates shall not apply to services supplied by electronic means, with the exception of services covered by point 6) of Annex III”. The said point 6) of Annex III, determining the possible exception, is now replaced by the following wording: “The supply of books, newspapers and periodicals, whether on a physical medium or by electronic means, or both, excluding publications wholly or mainly devoted to advertising and excluding publications consisting wholly or mainly of video content or audible music. »
A nebulous application
The November 2018 directive, which gives precedence to cultural concerns over those of the unification of the tax system, allows EU Member States to apply the same VAT rate to the sale of periodical publications and books distributed online, which constitute “services”, as they apply to printed publications, which constitute “goods”, under the State aid rules. »
From these initial facts, one might think that a reduced rate of VAT would apply to all e-books. However, this is absolutely not the case in practice. The European legislator has simply aligned one regime to another, leaving it up to the countries to define what is a book and an e-book :the definition of a book creates the problem, not the applicability of the rate.
The French example is extremely significant. Currently, the VAT applicable in France is 2.1% for the press and 5.5% for books (and therefore e-books). However, this rate applies in a very limited way.
For example, as specified in BOI-TVA-LIQ-30-10-40 / II-C-100, a digital work wishing to be subject to VAT at a reduced rate must not be of a marked commercial or advertising nature, i.e. it must not be primarily intended to inform the public of the existence and qualities of a product or service, with or without a price indication, with the aim of increasing sales or promoting the image of an advertiser (cf. II-D). Thus, any e-book with commercial content, even secondary, is excluded from this favoured application. And the French tax authorities have a very extensive interpretation of this regulation. A recent case on the subject is CAA de NANTES, 1st chamber, 14/01/2021, 19NT01767, in which a Nantes almanac publisher wanted to see VAT at a reduced rate because his book had a consequent and obvious editorial character. More than half of the book could be qualified as a book, if published separately. Nevertheless, as the administration had retained a mainly commercial character to the book, the full rate of 20% was applied.
Irish law also shows the same problem: is defined as an e-book in the sense of “Revenue” (chapter “Tax and Duty Manual – VAT and Electronic Publications”) only the book which also has a printed version available in physical form, and for these only. For example, online directories or e-books are taxed at the full rate of 20%.
This problem is widespread throughout the EU, and VAT for e-books is a problem for publishers everywhere. There are dozens of examples. As Directive 2018/1713 is particularly recent, the case law, due to Covid, is not yet particularly consistent. Its implementation in conjunction with the ATAD (Anti Tax Avoidance Directive) will create a series of clarifications in the coming months, which are likely to penalise specific categories of sellers.
Eternos Corporation can assist you in setting up a clear legal strategy for the sale of your books and digital content.
Please drop us a mail at contact [a] eternoscorp.com for more information.