UK consumers may not benefit from European Commission proposals on e-books

New European Commission proposals which could bring an end to the unequal VAT treatment between e-publications and their printed equivalents may not benefit UK consumers warns RSM.

The Commission proposal is one of a number of measures aimed at supporting e-commerce and online businesses in the EU, and could be implemented immediately upon approval from the European Council.

That 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’s response to the open consultation on the issue stated:

‘…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.’

VAT specialist David Wilson from RSM said:

The VAT legislation that ‘zero rates’ printed books in the UK (and affords 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’ – that is to say they don’t have 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.

‘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 servers are located.

‘However, as the Commission’s proposal is that member states will be allowed - but not obligated - to align the VAT treatment of e publications to that of traditional printed publications, consumers in the UK could still be paying VAT at 20 percent 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.

‘If the new rules are adopted by the EU and the UK Government maintains the line adopted in HM Treasury’s response to the consultation, there would undoubtedly be pressure on the Government to reduce the VAT rate to zero on e-publications purchased in the UK.’