In March 2015, the European Court of Justice ("ECJ") ruled infringement procedures against France and Luxembourg (cases C-479/13 and C-502/13). In these cases, the ECJ ruled that both EU Member States cannot apply a reduced VAT rate on the supply of electronic supplied books (online downloadable and streamable books). The latter is in contrast to paper books and e-books supplied on other physical means of support (such as CD-ROMS or USBs).

Infringement procedure

Both France and Luxembourg applied a reduced rate for electronically supplied books ("e-books"), meaning online downloadable and streamable e-books.

In France, the reduced VAT rate of 5.5 percent was applicable on downloadable e-books, which was similar to the VAT rate on paper books. On 4 July 2012, the European Commission ("EC") sent France a letter of formal notice regarding the applicable reduced VAT rate on e-books, followed by a response from the French government and an opinion letter of the EC. As the EC was not satisfied with the arguments raised by the French Republic on the application of the reduced VAT rates on e-books, it started with the procedure at the ECJ.

In Luxembourg, the (super) reduced VAT rate of 3 percent was applicable on downloadable and streamable e-books. Similar to the French infringement procedure, a letter was sent to Luxembourg on 4 July 2012 by the EC regarding the applicable reduced VAT rate on e-books, followed by a response from the Luxembourg government and an opinion letter of the EC. Also in this case, the EC was not satisfied with the reply of Luxembourg for applying a super reduced rate on the supply of e-books.

Dictum ECJ

In both the French as the Luxembourg infringement procedure, the ECJ ruled that the reduced/super reduced rate cannot be applied on the supply of downloadable or streamable e-books. According to the ECJ, the EU VAT Directive (article 98, second paragraph) states very clear that "the reduced rates shall not apply to electronically supplied services". Thus, the reduced/super reduced VAT rate can only be applied on paper books or e-books supplied on other physical means of support.

Besides the latter argument, the ECJ also ruled that the principle of fiscal neutrality, i.e., the principle preventing that a difference is made in the VAT treatment of two supplies which are identical or similar and meet the same needs from a consumer perspective, cannot extend the scope of reduced VAT rates in case of an unclear provision of the EU VAT Directive. In this regard, the ECJ again repeated that in this case, the provision in the EU VAT Directive is not unclear, as electronically supplied services are explicitly excluded from the reduced/super reduced VAT rate.

In our view, the ECJ provided a clear explanation on whether or not downloadable and streamable e-books could fall within the scope of reduced VAT rates. Thus, based on ECJ case law (also in combination with ECJ case C-219/13) the following VAT treatments (rates) are applicable on e-books:

  • downloadable and streamable e-books are subject to the standard VAT rate and cannot fall within the scope of the reduced VAT rate
  • e-books supplied on other physical means of support (such as CD-ROMs and USBs) can fall within the scope of the reduced VAT rates (as ruled in the case C-219/13)

Furthermore, at the beginning of this year there were two other EU Member States which introduced a reduced VAT rate on the supply of e-books:

  1. Italy - which extended its definition of books (any publication identified by an ISBN code and routed through any device, either physical or electronic). In our view, the latter definition is not in line with ECJ case law (and the EU VAT Directive).
  2. Malta - which extended the reduced VAT rate to e-books on physical carriers (such as CD-ROMs). In our view, this VAT treatment is in line with ECJ case law (and the EU VAT Directive (article 98, second paragraph juncto Annex III)).