European Union lifts the VAT burden on ebooks

The European Commission is to lift its tax crackdown on ebooks and it could see VAT on ebooks sold in European countries cut to the same level as the rate for print books, which would mean 0% in the UK.

Two years ago, in January 2015, the European Union launched a get-tough campaign to charge VAT on ebooks at the country’s standard rate. For example, in the UK, this is 20% and since the start of 2015 ebooks have been subject to the 20% charge despite print books being VAT-exempt.

The tax levy was particularly aimed at giant internet sellers such as Amazon which had sidestepped the confusing morass of EU VAT (value-added tax) for years by funnelling all their ebook sales in Europe through a base in Luxembourg where VAT is just 3%.

To make it even more confusing, the EU also set up the so-called Mini One-Stop Shop (MOSS) for VAT which meant that anyone in the EU selling ebooks direct to the public had to register and charge VAT even if their turnover meant they were below the VAT threshold (in the UK a business doesn’t have to charge VAT if their turnover is below £83,000 a year). This had the effect of instantly stopping many smaller businesses from selling ebooks direct.

However, in September this year, the EU ruled that ebooks really are books rather than ‘electronically supplied services’, paving the way for the announcement this week freeing individual countries to set their own ebook tax rates.

The European Commission now says it is delivering on its pledge to enable member states to apply the same VAT rate to e-publications such as ebooks and online newspapers as for their printed equivalents, removing provisions that excluded e-publications from the favorable tax treatment allowed for traditional printed publications.

The new plans also aim to simplify VAT rules for micro-businesses and start-ups. There will be a new annual threshold of €10,000 in online sales under which businesses selling cross-border can continue to apply the VAT rules they are used to in their home country. A second new annual VAT threshold of €100,000 will make life easier for small to medium-size businesses, with simpler rules for identifying where their customers are based but the new thresholds won’t be applied until 2018 on e‑services and 2021 for online goods.

The changes on ebook VAT, however, could be introduced by the middle of next year (2017). The current rules allow member states to tax print publications such as books and newspapers at reduced rates or, in some cases, super-reduced or zero rates (as in the UK). But the rules exclude e-publications, so these products have had to be taxed at the standard rate of VAT levied in each country.

It’s very likely that countries such as France will lower their VAT rate on ebooks as they previously attempted to do so before being referred to the European Court of Justice to raise the charge to their standard VAT level.

It remains to be seen whether the UK will slash ebook VAT rates from the present 20% to the zero rate on print books. The UK is in any case likely to be leaving the EU in the next couple of years after the Brexit vote.

However, the British Government Treasury could be reluctant to lose out completely on the ebook VAT cash windfall it’s been raking in for the past couple of years so don’t be surprised if  the ebook tax rate is just reduced to perhaps 9% or 10%.

It’s still welcome news though for UK-based authors who have seen ebook sales fall since the 20% VAT rate came in and who have been further hit this year by the collapse in the sterling exchange rate since the Brexit vote.

It’s official — ebooks really are books and Euro tax could plummet

The taxman cometh: how the new European tax swoop will hit authors