The VAT, or value added tax, on ebooks has been a thorn in the side of digital publishing for some time. Going back to the early stages of the recent years’ e-reader explosion when Germany was the first country whose digital publishers took issue with the way ebooks are taxed, to the current state of countries outright ignoring the mandated taxation rate in order to lure business to their countries, the issue is far from simple.
At the onset, the first news over VAT disputes came from German publishers; according to a German law, the price of any book must remain the same no matter where it is sold within the country. A major chain store in a large city or a country book shop must sell the book for the same price. The problem arose when the categorization of ebooks became hazy. While they were considered books and therefore subject to the pricing law, they were also considered similar to software downloads, and were taxed at an outrageously higher rate. While a print edition might cost $10 with a 7% tax, a digital edition of the same book would also cost $10, but be taxed as high as 19%.
More recently, two countries in the EU decided to risk the penalties associated with not charging the full VAT rate on books, a move that seemed both honorable and risky at the same time. Of course, the monetary penalties associated with that practice were more than recovered when all of the major ebook retailers set up their European offices in both France and Luxembourg. Amazon, Barnes and Noble, Kobo, and Bilbary all operate out of those lower VAT venues, for obvious reasons.
Now, the EU is threatening to make good on its promise to government officials and booksellers alike, assuring that they will crack down on countries who intentionally undermine the tax rate that all other EU countries abide by. In a statement about the issue, officials wrote:
“The effects of such unfair competition are felt in Member States that apply the VAT Directive correctly. Several Ministers of Finance and representatives of both the paper and epublishing industries have voiced their concern on this subject and have pointed out to the European Commission the negative effect on sales of books in their domestic markets.”
Unfortunately, while the tax officials figure out how to gain and the businessmen argue over whether or not one company has an unfair advantage in the book selling, it is the readers who suffer the effects of the game makers.