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A tale of two taxes as Luxembourg, France lose e-books fight

March 6, 2015 09:37 AM
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(Bloomberg)—It may be the same old story. But European Union judges said an e-book can’t be taxed at the same low rate as a traditional version.

The bloc’s top court ruled that Luxembourg, home to Amazon.com Inc.’s European headquarters, and France must replace their 3% and 5.5% value-added tax rates for e-books with far-higher standard levies of 17% and 20%.

EU law only allows reduced rates for the “supply of a book on a physical medium,” the EU Court of Justice in Luxembourg said Thursday. “Admittedly, in order to be able to read an electronic book, physical support, such as a computer, is required. However such support is not included in the supply of electronic books.” Changes should be made “without delay,” the court said in a statement.

The ruling adds to Luxembourg’s tax woes involving Amazon, No. 1 in the Internet Retailer 2014 Top 500 Guide, which helped pioneer the e-book market with the introduction of the Kindle device in 2007. EU competition watchdogs have criticized a potentially illegal fiscal pact with the online retailer.

The probe was followed by revelations by a group of journalists of thousands of pages of leaked documents that showed international corporations effectively lowered their tax bills to less than 1% of profit in the country.

The case follows a spate of complaints from national governments and publishers that claimed Luxembourg and France were distorting competition elsewhere in the 28-nation EU. The European Commission took the two countries to court in 2013.

 

Nothing changes

 

Consumers “should be able to buy a book at the same VAT rate, whether it be online or in a shop,” Luxembourg’s government said in an emailed statement. The book’s support, whether physical or electronic “doesn’t change anything to its cultural and educational value.”

The government said the decision will “only have consequences for Luxembourg citizens, because since January 2015, the VAT rate of the client’s place of residence must be applied to electronic services, including electronic books.”

France called on the European Commission to make proposals to introduce a principle of neutrality “that would allow applying the lower rate for all books.”

The reduced VAT rate “aims to ensure the equal fiscal treatment of books and innovation in the distribution of knowledge and culture,” French Finance Minister Michel Sapin and Culture Minister Fleur Pellerin said in a joint statement.

Drew Herdener, a spokesman for Amazon in the Grand Duchy, said that “the cultural and educational significance of a book is in the content of the author’s work, not its format.”

“Like many of our customers, we believe that books in any format should be subject to the same reduced VAT rate,” Herdener said in an emailed statement.

 

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