On 5 March 2015, the Court of Justice of the European Union (ECJ) gave its decision in the infraction cases against France and Luxembourg on their application of reduced VAT rates on electronic books (C-479/13 and C-502/13).
In summary, the Court has ruled that France and Luxembourg cannot apply a reduced VAT rate to the supply of electronic books, in contrast with paper books or books supplied on other physical means of support.
While the Court admits that a physical support (such as a computer or e-reader) is required in order to be able to read an electronic book, it argues that such support is not included in the supply of electronic books.
Moreover, the Court holds that the supply of electronic books qualifies as ‘electronically supplied services’ and finds that the VAT Directive excludes any possibility of reduced VAT rates being applied to such services.
In contrast to its ruling in the K Oy case (C-219/13), the Court has refuted the fiscal neutrality argument advanced by France and Luxembourg.
What could this mean for businesses?
Although this case only covers the application of the VAT rate on the supply of electronic books and only deals with the specific situation in France and Luxembourg, it brings interesting perspectives as to the qualification of electronic publications and the applicability of reduced VAT rates to these electronic publications throughout the EU.
It will be interesting to monitor further developments in other EU Member States, like Italy, where reduced VAT rates for electronic books have also been introduced or announced.
It is to be seen whether, further to its Digital Agenda 2020, the EU Commission will now be willing to propose – possibly upon request of some Member States and/or the industry – amending the VAT Directive by providing an option to Member States to apply a low VAT rate for both paper and electronic books.
In any case, affected businesses may wish to review their current contractual and commercial arrangements so as to assess whether they are impacted by the Court’s ruling and take appropriate measures to safeguard their interests.
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