Europe sues to continue taxing digital content higher than physical

When is a book not a book? When it comes to European tax law. Continental lawmakers may punish France and Luxembourg for reducing VAT on e-books to match their physical equivalents.

In many countries, printed books and other content artefacts enjoy reduced VAT rate exemptions for cultural reasons. But digital equivalents are mostly not exempted.

This year, France moved e-books outside the country’s standard 19.6 percent VAT bracket, putting them on a footing with physical books’ seven percent rate. Luxembourg also reduced e-book tax from its 15 percent countrywide rate to just three percent.

But the European Commission has now begun investigating the countries for potentially breaching “infringing EU law”, saying:

“This situation is creating serious distortions of competition that are damaging to economic operators in the other 25 Member States since digital books can easily be purchased in a State other than the one where the consumer resides…

“Local actors in the electronic book market have complained that some of the dominant players in this market have reorganised their distribution channels to benefit from these reduced rates, which has apparently had a serious effect on the sale of books (both digital and traditional) in the other Member States in the first quarter of 2012.”

The EC’s technocratic action creates a rare anomaly in which it appears to be acting against consumers’ wish to buy books as cheaply as possibly across borders – something EC digital agenda commissioner Neelie Kroes’ agenda has specifically set out to achieve in her aim to create a single European digital content market.

And it is an issue that is more widespread than just books. Digital newspapers, for example, typically do not benefit from the special VAT reductions applied to their printed forebears, putting them at a price disadvantage with old-line products.

The EU allowed member states to reduce book VAT in 2006. This week, however, the EC said: “Downloading of digital books … is not included in this list and cannot therefore be taxed at the reduced rate.” In truth, the EU’s 2006 mandate did not specifically disallow digital book reductions, and was absent of any distinction between physical and digital at all. No wonder individual countries are deciding, for themselves, “a book is a book”, regardless of medium.

This kerfuffle may be short-term. The European Commission says it will put forward proposals by the end of 2013 for making printed and digital book rates equivalent. For now, however, individual countries that act sooner may be deemed lawbreakers.