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eBooks Now Subject to Lower VAT Rate


Until the end of 2011, the standard Luxembourg VAT rate (15%) applied to the sale of eBooks subject to Luxembourg VAT, whereas physical books benefited from the super-reduced VAT rate of 3%. Things have now changed: as of 1 January 2012, both physical and digital books benefit from the super-reduced VAT rate of 3%. Taxand Luxembourg discusses the new lower rate of tax and how it will benefit taxpayers in Luxembourg.

The distinction between physical and digital books originally arose from the fact that eBooks were considered as electronically supplied services from a VAT point of view and that these electronically supplied services were not, and are still not, included in the list of goods and services that may benefit from reduced VAT rates.

However, in its communication in December 2011 regarding the modernisation of the VAT system, the European Commission stated that "similar goods and services should be subject to the same VAT rate and progress in technology should be taken into account in this respect, so that the challenge of convergence between the on-line and the physical environment is addressed".

In a move to strengthen Luxembourg's position in Europe to establish e-commerce businesses, the Luxembourg government decided that a distinction should no longer be made between digital and physical books and that both should therefore benefit from the super-reduced VAT rate (3%). The decision of the Luxembourg government was reflected in a circular, as issued by the VAT Authorities on 12 December 2011.

Sources at the European Commission have now been reminded that eBooks were not on the list of services allowed to benefit from a reduced VAT rate and that the EU commission does not agree with this measure. Luxembourg is however not the only Member State concerned, as the decision of the Luxembourg government follows a similar decision in France. The VAT rate applicable to eBooks in France (7%) is however higher than in Luxembourg.

Taxand's Take

Discussions between the EU Commission and the Luxembourg and French governments might be held in the coming weeks / months. Considering that eBooks respond to the same needs as paper books, the VAT system should match the global evolution towards a more digital world. A different position would be wrong as it would be against the principle of tax neutrality.

Your Taxand contact for further queries is:.
Christophe Plainchamp
T. +352 26 940 280

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Taxand's Take Author