The European Commission has officially launched an infringement procedure against France and Luxembourg over the willful lowering of ebook VAT rates. The EU has given the two countries one month to respond to allegations that they are “creating serious distortions of competition.” The case basically stems from authors and small publishing houses saying the current methodology is anti-competitive and customers are going to do business with the companies that lower VAT Rates.
Amazon has its European headquarters based in Luxembourg and uses the low VAT rate to sell ebooks all over Europe. This allows customers in the United Kingdom to only pay 3% VAT on ebooks instead of the normal 20%. Meanwhile, France is home to many major publishers and has lowered the VAT to 7% to compete in the European ebook market.
France and Luxembourg both implemented their lower VAT rates on January 1st, 2012. It is quite amusing that these two countries are doing exactly what the European Commission hopes to achieve across Europe. Reports indicate that”In 2013 the EC intends on submitting proposals aimed at equalizing the rate of VAT applied on traditional books and digital books, following general recognition that the current situation is an anomaly: under current law e-books are regarded as a service supplied electronically, which is not included in this list and cannot therefore be taxed at the reduced rate. A further change is scheduled for 2015, when VAT on e-books will be paid based on where the purchaser is, not where the company that sells those e-books is based.”