Anyone who has bought the Kindle edition of a book from Amazon will have seen the disclaimer “Unlike print books, digital books are subject to VAT”, and perhaps wondered why this should be. Books are zero rated presumably to encourage us to read, so why charge VAT on e-books?
France and Luxembourg both decided to charge a reduced rate of VAT on books delivered electronically. France charges 5.5% compared with a standard rate of VAT of 19.6%; while Luxembourg charges just 3%. Both have now been declared illegal by the European Court of Justice (Case C-479/13).
The VAT Directive, adopted in 2006, not surprisingly, does not mention e-books. At that time they were a tiny fraction of the market, but the proportion of all books sold electronically is growing fast and is forecast to exceed 20% by 2017. What is more surprising is that the European Commission in 2011 should have adopted guidelines banning a reduced charge on e-books and that the ECJ should have upheld this ban.
Britain does not charge VAT on printed books, but charges the standard rate of 20% on electronic books. Following the ECJ's judgement, it would be unable to zero-rate e-books.
This would seem to be a case where a little subsidiarity would go a long way without undermining the single market. The Commission should urgently bring forward proposals to allow national governments to determine the rate of VAT charged on books however they are delivered.