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20th Jan 2019

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EU's new VAT rules likely to make ebooks cheaper

  • Under the current EU rules, member states are not allowed to apply reduced VAT rates to ebooks and digital newspapers. The commission proposes to change that (Photo: Michael Mol)

The European Commission is proposing to let member states reduce the rates of value added tax (VAT) on digital books and newspapers.

Under the current EU rules, member states are only allowed to apply reduced VAT rates to physical books and newspapers.

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  • Ansip (c): Current VAT system is 'major headache' (Photo: European Commission)

Luxembourg and France had introduced reduced rates for ebooks, but were scolded by the EU's Court of Justice last year. The court ruled that under the current EU rules it was illegal for them to have done so.

The ruling was “a message for us to intervene”, said European commissioner for digital single market, Andrus Ansip, who informed journalists about the new plans last Friday (25 November).

He spoke on the condition that stories would not be published before the official announcement on Thursday (1 December).

If the proposal is adopted, member states would be allowed to have reduced rates for ebooks and digital newspapers, if they wanted to.

“We would not push Denmark to introduce reduced rates if they don't want to use those rates,” said Ansip. Only Denmark and Bulgaria do not have reduced VAT rates for physical books.

The measure is part of a broader VAT reform.

'Headache'

The EU's executive wants to make it easier for small European companies to sell their goods to customers in another EU member state.

“The existing VAT system is a major headache for our businesses,” said Ansip.

“It is very complicated for them to register their activities in all the member states they are selling some goods or services.”

As an example, the Estonian commissioner noted that a company selling through the Internet across the EU could, in theory, be audited by 28 different tax departments.

“For small companies the message is clear: stay at home. Too complicated to deal with 28 different auditors,” he said.

The commission is proposing that the tax department of the country where the company is located should be the one responsible.

“Others, they have to trust,” said Ansip.

Such a system of mutual recognition exists already in various fields, for example product certification.

The recent VW emissions scandal highlighted that such systems could only be as strong as their weakest link, however.

The commission claims that through simplification of the rules, EU businesses will save around €2.3 billion due to reduced administrative burdens.

Fiscal advantage to non-EU companies

Ansip also proposes to annul a VAT exemption for non-EU companies.

Currently, products that are imported into the EU are free from VAT if the value is below a certain threshold, in most EU countries that value is €22.

“It's very bad for European companies, because this is not a level playing field,” said Ansip.

According to a 2015 study by the EY accountancy firm, ordered by the EU commission, the exemption “has caused a competitive distortion in which trade from outside the EU is given a fiscal advantage”.

The consultancy firm found that the volume of packages receiving the advantage had increased from around 30 million in 1999 to 115 million in 2013.

“This growth in postal volumes is in line with the increase of individuals shopping online in the EU,” the EY report said. It calculated that the level of lost VAT income grew from €118 million in 1999 to €535 million in 2013.

With the rising popularity of ordering cheap goods from countries like China, the commission thinks the time has come to abolish the rule.

“When this exemption was introduced, we practically didn't have e-commerce,” said Ansip, while stressing that the measure was not aimed at specific companies.

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