The European Court of Justice has just concluded that EU member states are free to charge differing rates of VAT on eBooks and paper books. This will allow all countries in Europe to basically change their VAT on all books and not break ‘fiscal neutrality’, an EU concept whereby markets for the same goods are distorted by varying tax rates.
There have been major disagreements between member states and the European Commission on this subject over the past three years. Luxembourg dropped eBooks from the standard 15% VAT rate to 3% in 2012. France then followed suite with a drop from the then standard French VAT 19.5% to 5.5%.
Most countries in Europe have different VAT prices on digital content and were remiss to change their policies because they did not want to get smote by the European Court of Justice. With their new ruling, member states are now totally free to change the taxes on eBooks, without worry.
The 3% VAT based in Luxembourg was very advantageous to Amazon, Apple, Google and Kobo as an entry point to Europe. By basing their operations there, they could sell books in most European countries at a reduced VAT rate. This really helped them penetrate the lucrative UK market, where the established VAT rate is 20% on digital content.
Publishers, bookstores and small presses have been lobbying the UK government for change. They found that being based in the United Kingdom was inherently disadvantageous, because they had to charge 20% VAT, while Amazon could get away with 3%. This has prompted the EU to change their legislation in early 2015. Ebook companies will have to charge VAT at the rate where the customer is who buys the e-book, rather than at the rate where the servers of the e-book business are based.
Michael Kozlowski is the Editor in Chief of Good e-Reader. He has been writing about audiobooks and e-readers for the past ten years. His articles have been picked up by major and local news sources and websites such as the CNET, Engadget, Huffington Post and Verge.