CJEU: Electronic books cannot benefit from reduced VAT

Since 1 January 2012, France has applied a reduced VAT rate of 5.5% to the supply of electronic books, and Luxembourg has used a "super-reduced" rate of 3%.

The full rate of VAT is 20% in France and 17% in Luxembourg, but books, in physical or electronic form, are taxed at the lower rates. The UK zero rates the supply of paper books but charges the full 20% rate of VAT on supplies of electronic books.

Both France and Luxembourg, with the support of Belgium, had argued that electronic books are covered by 'Annex III' of the VAT Directive, which allows reduced VAT on certain goods, including paper books.

However, the Court agreed with the European Commission's argument that as the Annex refers to the "supply of books … on all physical means of support", it is only applicable to "the supply of a book found in a physical medium".

Electronic books are supplied as "electronically supplied services", the Court found. While they rely on a "physical support" to be read, such as a computer, that support is not included in the supply of the electronic book.

VAT expert Rhys Pippard of Pinsent Masons, the law firm behind Out-Law.com, said: "While these judgments level the playing field for the member states, they do little to resolve the ongoing disparity afflicting the VAT rates paid by consumers for printed books and e-books."

"Moreover, the practical impact may be less than expected. Since the change in the place of supply rules for electronically supplied services on 1 January 2015, VAT on the online supply of e-books is now due in the country where the consumer is located rather than where the supplier is established. Therefore, the bottom-line tax benefit which may have been previously enjoyed by online retailers delivering e-book downloads from Luxembourg and France will have already been minimised anyway."

Commenting on the different VAT treatment for paper books and electronic books, Pippard said "The consumer who ultimately absorbs the VAT cost in either event can only wonder how the European Commission can continue to require such divergent VAT treatment when essentially the same product is supplied either in print or by download."

The judgment does not prevent member states from introducing reduced rates of VAT on paper books, the Court confirmed.

The referral to the CJEU followed the failure by France and Luxembourg to change their VAT rules around e-books after the issue by the European Commission in October 2012 of "reasoned opinions" requesting a change in law.