The Economic and Financial Affairs Council (ECOFIN) has agreed a proposal that member states will be allowed - but not required - to align the VAT treatment of e publications with that of traditional printed publications.
Other than publications wholly or predominantly consisting of audible music or video content, Member States will be able to apply VAT at a reduced rate – including a zero-rate - to electronically supplied books, newspapers and periodicals.
Following a change to European VAT rules on 1 January 2015, e-booksellers have had to charge VAT at the rate set by the country where the buyer resides, rather than the rate where the suppliers are located.
The new rules will be adopted without further discussion once the text has been finalised in all official languages and will enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
This does not however mean that UK consumers will benefit from VAT zero-rated, or even reduced-rated e-books and e-newspapers in the foreseeable future.
Whilst the UK supports the principle of extending greater flexibility to Member States on VAT rates, and supports the ability of member states to make a decision to apply a non-standard rate of VAT to e-publications, HM Treasury originally responded to the European Commission’s consultation on the issue in July 2016 with the following:
We do not think that the application of a reduced rate for e-publications is desirable. We do not accept that e-publications and physical books are equivalent and so should automatically be subject to the same rates. There is a clear and simple borderline between physical goods and electronic services which risks being breached and our assessment is that this would pave the way for more borderline disputes”.
The VAT legislation that ‘zero-rates’ printed books in the UK (and allows VAT reduced rates in other Member States), substantially pre-dates the invention of e-books. It is noticeable that increasingly, some books are ‘born digital’ i.e. without a printed equivalent; but to the consumer, a book is a book whatever its format; they both deliver the same content to the end-user and, from the point of view of that consumer, content is more important than the medium through which it is supplied.
Indeed, the European Commission itself recognises that where a VAT reduced rate (or even a zero or super-reduced rate) is allowed for printed books, it should also be applicable to e-books.
However, as the agreement reached between Member States is that they will be allowed - but not required - to align the VAT treatment of e publications with that of traditional printed publications, will the UK Government maintain the line adopted in HM Treasury’s response to the consultation? If it does, consumers in the UK could still be paying VAT at 20 per cent on downloaded e-publications, even though e-publishers based in the UK could sell their products at a reduced rate in other EU Member States.
Although the UK is leaving the EU and will no longer be subject to EU VAT rules (subject to any transitional agreement) the agreement reached between Member States does afford the Chancellor to take appropriate action now to keep the UK aligned with developments in digital policy of EU Member States. Whether he elects to use his Budget on 29 October to do so remains to be seen.