The Court of Justice of the European Union (CJEU) has recently confirmed in the long-running cases of the European Commission v France (Case C-479/13)
and European Commission v Luxembourg (Case C-502/13)
that the reduced rate and super-reduced rate of VAT being applied by France and Luxembourg respectively in relation to e-books cannot be justified under EU law. In particular, it was ruled that e-books fell outside of the list of reduced rated items described in Annex III of the Principal VAT Directive (Directive 2006/112), as they are not books produced ‘on all physical means of support’ but electronically supplied services.
The decision therefore reaffirms the position that electronic services are not able to benefit from reduced rates. It follows the CJEU’s judgment in the Finnish case of K Oy (Case C-219/13),
which held that applying a different rate of VAT to conventional books and books provided on other physical means of support (e.g. CD ROM) would involve a breach of fiscal neutrality in member states if both types of books were considered to be similar and fulfilling the same needs by consumers.
Taken together, these cases underline the requirement for 'physical support' to be supplied at the same time as the software/information, and for the item to be similar to a paper book in terms of the needs it fulfils. Although the UK zero-rating of books is not a reduced rate under EU law, the same arguments would appear to apply to the scope of the zero rate for books supplied in the UK, and the decision reaffirms the position that e-books are subject to the standard rate of VAT.
Any businesses or organisations that already make supplies of e-books, or who intend to make such supplies in future, may therefore wish to review their VAT accounting position to ensure that the correct VAT treatment is being applied to these supplies, and that any additional cost is being factored into pricing.
If you would like to discuss in further detail, please contact us.
UK VAT team