THE EUROPEAN COMMISSION has referred France to the European Court of Justice for its use of a reduced VAT rate for e-books.
The action was launched last week following October’s Council of Ministers meeting. The EC claims that France has failed to comply with the EU VAT Directive which requires the full VAT rate to be charged on digitally distributed books – compared to the reduced rate allowed for printed books.
Currently France charges a VAT rate of 5.5% on both e-books and printed books in direct contravention of the directive.
The anomalies in e-book VAT rates arise because countries have long been permitted by EU law to charge reduced or nil VAT rates on printed books as they are viewed as being of special social benefit. However, since the VAT laws were drawn-up prior to the modern digital age, e-books were never been given a similar treatment.
Some countries such as France and Luxembourg have broken ranks on VAT rates, often to encourage the digital industry to locate in their country, and sell to consumers in any country, much to the chagrin of unfair countries including as the UK and Germany, which see it as unfair competition.
TMF Group head of tax Richard Asquith said: “The pressure from Germany and UK is telling. The EC threatened France last year with legal action. It appears to have lost patience with diplomatic routes, and is no longer going to push this through the EU courts to get a change.”