E-books reduced VAT proposals “may not benefit” UK consumers

UK consumers “may not benefit” from the European Commission’s proposals on e-books.

The proposals are aimed at supporting e-commerce and online business in the EU and could be implemented immediately following approval from the European Council. Although a reduced VAT rate for e-publications could bring an end to the unequal VAT treatment between e-publications and their printed equivalents, this “may not benefit” UK consumers, warns RSM.

HM Treasury’s response to the open consultation on the issue stated: “We do not think that the application of a reduced rate for e-publications is desirable. We do not accept that e-publications and physical books are equivalent and so should automatically be subject to the same rates. There is a clear and simple borderline between physical goods and electronic services which risks being breached and our assessment is that this would pave the way for more borderline disputes.”

On 1 January 2015, there was a change to European VAT rules where e-booksellers have had to charge the VAT rate set by the country the buyer resides,rather than the rate of the server location.

The proposal implementation does not mean that UK consumers will benefit from VAT zero rated or reduced rated e-books and e-newspapers in the future. The UK supports extending flexible VAT rates to Member States as well as the ability or them to apply a non-standard rate of VAT to e-publications or not.

David Wilson, VAT specialist, RSM said: “The VAT legislation that ‘zero rates’ printed books in the UK (and affords VAT reduced rates in other Member States), substantially pre-dates the invention of e-books. Some books are ‘born digital’, without a printed equivalent, but to the consumer a book is a book whatever format, delivering the same content which is the most important to the consumer.”

If the new rules are adopted by the EU then there would be pressure on the government to reduce the VAT rate to zero on e-publications purchased in the UK.

Wilson continued: “Consumers in the UK could still be paying VAT at 20% on downloaded e-publications, even though e-publishers based in the UK could sell their products at a reduced-rate in the EU.”

Related reading