CJEU 7 March 2017, case C-390/15 (RPO).

The EU VAT Directive currently excludes electronically supplied services (ESS) from the VAT reduced rate. In its recent decision in the case RPO the CJEU holds that the reduced rate is also not available for electronically supplied reading material, eg books and publications (e-books). The CJEU also finds that the different VAT treatment of comparable supplies (a reduced rate is allowed for the supply of physical books) does not violate EU law.

Questions referred

The Polish Ombudsman asked the Polish Constitutional Court whether the Polish VAT Act complies with Polish constitutional law and more specifically, whether prescribing the standard VAT rate on the supply e-books, whereas physical books are taxed with the reduced VAT rate was in line with the principle of fiscal neutrality. These Polish VAT provisions followed the provisions of the EU VAT Directive.

The Polish Constitutional Court asked the CJEU whether the principle of fiscal neutrality prevented the exclusion of the supply of e-books from the reduced VAT rate, bearing in mind that a reduced rate was allowed for the supply of physical books.

Justification for Breach of Neutrality

The CJEU concludes that equal situations are treated unequally, ie physical books and the e-books are comparable but taxed differently. However, the CJEU considers that there exists a justification for this infringement of the principle of fiscal neutrality.

The supply of an e-book qualifies as an electronically supplied service (ESS). Under the EU VAT Directive, ESS are excluded from the reduced VAT rate. When introducing the system that governs the VAT treatment of ESS, the European legislator envisaged to make such a system as simple as possible in order not to complicate e-commerce in the EU. Allowing various VAT rates for the supply of ESS would frustrate this goal. From this the CJEU concludes that the exclusion of e-books from the reduced VAT rate is allowed under EU law.

Pending legislation

The European Council is currently working on a proposal to amend the EU VAT directive in order to allow a reduced VAT rate for the supply e-books. It is expected that this proposal will be adopted shortly, at which time the current decision of the CJEU in RPO will no longer be relevant.