On 7 March 2017, the Court of Justice of the European Union (CJEU) ruled that the current rules in the EU VAT directive do not have to provide for the possibility to apply the reduced VAT rate on e-books.

The Polish VAT legislation currently contains a provision which allows a reduced VAT rate (5%) on the supply of publications that are printed or on a physical support. The electronic submission of (the same) publications are, however, explicitly excluded from the application of this reduced VAT rate. The Polish provision is based on the EU VAT Directive which allows a reduced VAT rate on supplies of books on all physical means of support, newspapers and periodicals, other than material wholly or predominantly devoted to advertising. The Polish Court referred two questions to the CJEU regarding the application of this reduced VAT rate.

The first question concerned a question of a formal nature. The Polish Court asked whether the procedure followed when drafting the legal provision must be considered valid. This question is based on the fact that the proposal for the provision was slightly different than the current text of the provision. The text of the proposal includes the phrase "on all physical mean of support" in stead of "as well as audio books, CD, CD-ROMs or any similar physical support that predominantly reproduce the same information content as printed books". The question that arose was whether the legislative procedure was carried out correctly, as the European Parliament was not consulted again after the wording of the provision had changed. The CJEU ruled that only in cases where the new wording of the provision, as a whole, differs in essence from the text on which the Parliament has already been consulted, it must be consulted again. The CJEU ruled that this was not the case here. According to the CJEU, the list in the previous proposal was meant to illustrate that all feasible physical means of support were covered and the current provision was only a simplification of the drafting of the provision. As such, the procedure for drafting the provision was carried out correctly.

The second question concerned the application of the provision, as the Polish Court asked the CJEU whether the concept of fiscal neutrality allows for the exclusion of the application of the reduced VAT rate to the supply of e-books and other electronic publications. The concept of fiscal neutrality is the reflection of the principle of equal treatment as stated in article 20 of the Charter of Fundamental Rights of the European Union. On the basis of this concept similar situations should not be treated differently and different situations must not be treated in a similar same way, unless a different treatment is objectively justified.

In answer to the question raised, the CJEU emphasizes that the purpose of the reduced VAT rate is to promote reading, be it literature, non-fiction, newspapers or other periodicals. Since such reading can also be done using e-books, the supply of books in physical form and the supply of e-books must, according to the CJEU, be regarded as similar situations, which are, however, treated differently. The fact that physical books are regarded as "goods" and e-books as "services" within the meaning of the EU VAT Directive does not alter this conclusion.

From the foregoing it follows that a different treatment of similar situations is contrary to EU law, unless this difference justified objectively. According to established case law, this can be considered the case is the difference in treatment aims to pursue an objective legally permitted under EU law and the measures taken are suitable to achieve that objective and proportionate. The CJEU considers that this is the case, since the exclusion of e-books from the application of the reduced VAT rate serves the purpose of making electronically supplied services subject to clear, simple and uniform rules in order that the VAT rate applicable to those services may be established with a sufficient level of legal certainty and, thus, that the administration of VAT by taxable persons and national tax authorities is facilitated. This means that the EU legislator did not exceed its discretion by the different treatment of books in physical form and e-books. The fact that the EU legislator could have chosen to remove e-books from the specific VAT regime for e-books and therefore could have been subject to the reduced VAT rate, does not alter this conclusion, according to the CJEU.

The above case confirms the current difference between books in a physical form and e-books, since the difference in the application of the reduced VAT rate can, on the basis of the various principles of EU (VAT) legislation, be considered justified.