VAT LEVIED ON E-BOOKS may have to be dropped by the government if a legal challenge in the first-tier tribunal by law firm Berwin Leighton Paisner proves successful.
BLP is challenging HM Revenue & Customs on behalf of an unnamed client in a tribunal over its decision to apply the standard 20% VAT charge on e-books when their paper counterparts are zero-rated.
Should the challenge prove successful, HMRC could have to make e-books zero-rated too, potentially causing prices to drop.
When the UK joined the European Union, it was afforded a transitional provision to keep a zero rating on books if the rating was already in place in 1991. That provision did not allow for the extension of the zero rating, and it is HMRC's position that incorporating the e-books would do just that.
Alan Sinyor, BLP head of VAT, said that the word ‘book' in VAT legislation should refer to both physical books and e-books and, failing that, should qualify under fiscal neutrality as both products meet the customer's needs in the same way.
"The subtle but vital point is that this is not an extension. It is a correction of a misinterpretation," Sinyor told Accountancy Age. "The word ‘book' has been misinterpreted and it needs to be put right and recognise the fact that e-books are also included."
Should it be ruled that including e-books would be an extension of the rating and that both products should be equal, VAT would be levied, but potentially at a reduced rate.
The EU last week ordered both France and Luxembourg to abandon their reduced VAT rates on e-books and instead charge the standard rate. That decision is likely to hit companies such as Amazon, which bases its e-book service line in Luxembourg.
A consultation on the issue is due on the issue in the near future, with an EU-wide agreement high on the agenda.
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