EU 2015

UK last major supporter of higher VAT rates on e-books

UK last major supporter of higher vat rates on e-books

France, Germany, Italy and Poland have called on the European Union to allow the EU member states to levy a reduced rate tax on e-books, to match that charged on physical copies. As many countries try to build their digital economy a lower VAT on e-books is a good step forward.

France currently charge 5.5% VAT on e-books whereas the UK charge their standard rate of 20%. However in a court ruling in the last few weeks it was declared that France and Luxembourg were breaking the EU VAT directive by charging their reduced rates on e-books and it has now been ruled that they must increase this to their standard VAT rates. Continue Reading

Court rules in favour of higher VAT rate on e-books

Court rules in favour of higher VAT rates on e-books

The UK and Germany pressured the European commissions (EC) to challenge the reduced VAT rates currently charged by Luxembourg and France on e-books, matching what they charge in printed copies, whereas the UK and Germany charge 0% and 7% respectively on printed books but charge their standard rates of 20% and 19% on e-books.

Under the EU VAT directive countries are allowed to levy a reduced or 0% rate on printed books. However it didn’t have an official on ruling e-books, which implies that the countries standard rates should be applied. However France and Luxembourg decided to go against this and treat e-books the same as printed copies, with Italy and Malta also joining them later on.

However after being pushed by the UK and Germany for a decision the European court of justice has ruled that e-books do not have the same characteristics of printed books and therefore cannot be subject to the same reduced rate. Meaning e-books are liable to the standard VAT rate in EU states, this is on the basis that it is a service and hence not listed in the EU directive as being subject to reduced rates.

This ruling means that France and Luxembourg now have to increase the VAT charged on e-books, with France making the change affective from 1 Jan 2016, and Luxembourg making the change from 1 May 2015.

EU digital VAT changes fail to meet expectations

EU digital VAT changes fail to meet expectations

It has been reported by the European Commission that fewer than 7,000 businesses, including 500 non EU companies, have registered under the new MOSS scheme around the European Union. Which is significantly lower than the estimated hundreds of thousands expected. In the UK alone there are an estimated 200,000 companies who were affected by the changes.

The low registration numbers could be an indicator that companies are not aware that they now need to collect foreign VAT for the first time, figures suggest that up to 62% of small businesses are unaware of how the changes affect them. Potentially these smaller businesses may have decided to stop selling to countries in the European Union due to the additional administrative burden that they may not be able to afford as it is the first time they are drawn into the EU VAT regime.

In the case of UK companies they may be put off from applying as even though, the “mini one-stop shop” would seem the easiest option for small businesses, if they are trading under the VAT threshold they won’t be registered for VAT in the UK and will need to do that. Technically, registering for VAT means that they potentially lose their UK £81,000 exemption – but HMRC have said that such businesses can register for their EU sales only and as long as their UK sales don’t go over this threshold they can remain outside the scope of UK VAT, so if businesses are unaware of this they may choose not to register.

It was originally estimated by HMRC that an additional £300m in revenue for the UK would be generated by the changes, but if companies are pulling out of selling to the EU then this figure may be significantly lower.

For more information on EU digital VAT changes, please see our previous posts.

EU 2015 VAT Changes for American Companies
EU 2015 VAT Changes – Determining customer location
VAT Changes in the digital download world