France is facing court action over its continued use of reduced VAT rates for e-books in contravention of EU rules.
The European Commission has referred France to the European Court of Justice (ECJ) over the 5.5% VAT rate charged on e-books, compared with 20% in the UK and 19% in Germany.
The EC claims that France has failed to comply with the EU VAT Directive which requires the full VAT rate to be charged on digitally distributed books – compared to the reduced rate allowed for printed books. In the UK, printed books are zero-rated.
France, currently charges a VAT rate of 5.5% on both e-books and printed books in direct contravention of the Directive. Luxembourg is the main offender, charging only 3% on both e-books and printed books, which has attracted companies such as Amazon, which have a large online sales hub in the country.
The anomalies in e-book VAT rates arise because countries are allowed to charge reduced or nil VAT rates on printed books as they are viewed as being of special social benefit. However, since the VAT laws were drawn-up prior to the modern digital age, e-books were never given a similar derogation.
Richard Asquith, head of tax, TMF Group said: ‘The pressure from Germany and UK is telling. The EC threatened France last year with legal action. It appears to have lost patience with diplomatic routes, and is no longer going to push this through the EU courts to get a change.’