The top court of the European Union has ruled that ebook are ‘services,’ not books, and that European countries are not allowed to apply the same favorable tax treatment as paper books. The EU court’s reasoning behind the ruling is that ebooks can’t be used without a physical device, so ebooks should be considered as a service provided to the owners of the devices.
Since 2012, France has applied a 5.5% VAT rate and Luxembourg a 3% VAT rate on e-books, the same rate as for paper books. The European Court of Justice said both countries must apply their normal VAT rate, which for France is 20% and for Luxembourg is 17%.
Europe had already closed an ebook-related tax loophole used by Amazon to charge a lower VAT rate on ebooks in Europe. Amazon had claimed its Luxembourg base allowed it to charge a 3% VAT on ebook sales throughout Europe. However, the EU changed the law, forcing the mail-order retailer to apple the VAT rate applicable to the customer’s own country
While there is still a possibility that an “extensive overhaul” of VAT rules, due to be completed next year, might ease the VAT rates for ebooks, it is also possible that buyers of paper books might see an increase in the VAT in order to pay for a drop in the taxes on ebooks.
Apple has experienced its own issues in dealing with the EU over ebook sales, as the company settled with the European Unions over its dealings with ebook publishers in 2012.