Unless you live in Europe or are the business of selling books to European markets, you might not even be aware that there has been a movement afoot in European Union (EU) courts related to the tax on e-books. But for some people, particularly those in France and Luxembourg, the ruling handed down this month by the powerful and influential Court of Justice of the European Union is a pretty big deal. That’s because the Valued Added Tax or VAT that is charged to those who purchase e-books in those nations just surged about 15%
What is VAT?
VAT is similar to the sales tax that consumers in the USA and other countries pay when they buy things such as retail products. Since the economy in the European Union counties is centralized, making it possible to use the same currency through the many EU nations, the agreed-upon VAT applies throughout the whole of the EU.
You may be wondering, then, why this new ruling by the courts is only going to have a big impact on France and the tiny nation of Luxembourg. The reason is that most countries in the EU – including the United Kingdom and Germany – have already been charging higher tax rates on e-books sales.
Who is Affected?
But Luxembourg has been charging a tax of only 3%, while France has been levying a 5.5% VAT. That will all have to change now, since the EU court justices have ruled that Luxembourg needs to start charging 17% and France must charge 20%.
Amazon, the world’s largest e-book seller, hinted late last year than it may have to increase the price of e-books sold in the EU in order to compensate for the tax hike. It remains to be seen whether that will happen – and whether other providers of digital content like Apple will also decide to raise their prices.
Luxembourg VAT Revenues Will Sink
What is certain, however, is that the biggest loser of all in this change is Luxembourg. The country, which is one of the smallest in the world, boasts a population of only around half a million people. That means it is about the same size as Atlanta, GA or Hamilton, Ontario – and would normally generate very little tax revenue from such a limited consumer base.
But because it has been offering such a cheap VAT on digital products like e-books, giant corporations including Amazon and Apple have been channeling sales of items like e-books, digital downloads, and apps through Luxembourg in order to save money. The same goes for Microsoft, which sells Skype communication services throughout the EU. As a result, Luxembourg has been enjoying a huge windfall of tax revenues that will now end since it no longer represents a tax shelter or portal for commerce at a discounted VAT rate.
What Prompted the Court Battle?
The EU voted on the higher VAT taxes all the way back in 2008, but France and Luxembourg decided to contest the law that said that e-books did not qualify for the same special lower tax rate that is charged on sales of traditional ink and paper books. So in hopes of having the ruling changed and the higher e-book tax overturned, France teamed up with Luxembourg and took their arguments in favor of lower taxes to court.
French publishers have also protested the tax, which they say discourages people from reading. But with this recent ruling that court case is now concluded, and France and Luxembourg lost. Judges Court of Justice of the European Union – which happens to be based in Luxembourg – rejected the idea put forth by France and Luxembourg that e-books are no a “service” but are “goods.” They said that e-books are, in the eyes of the court, a digital service.
What’s Next?
Buying e-books may get somewhat more expensive in some countries, as booksellers pass along the VAT tax expense they pay to their end-user customers. France’s Culture Minister has vowed to keep campaigning for what he calls “technological neutrality,” which basically means that all books, regardless of whether they are printed or electronic, should be treated equally in terms of VAT.
He will likely have lots of citizens on his side, too, because although e-books only accounted for less than 5% of all book sales in Europe in 2013, e-book popularity is expected to surge over the next two years. By then e-books may command as much as 20-25% of the book market in the EU. Meanwhile, e-books are still offered free of charge on Free-eBooks.net, which continues to lead the charge in revolutionizing how people throughout the world access books, read, and stock their personal libraries.
