The European Commission confirmed in December 2016 that it will enable Member States to apply the same VAT rate to e-publications such as e-books and online newspapers as for their printed equivalents, removing provisions that excluded e-publications from the favourable tax treatment allowed for traditional printed publications. CTG has welcomed this helpful development, which we proposed in a response to a Commission consultation earlier this year. Full details of the consultation response are available here.

Following the referendum, it remains uncertain what, if any, changes will apply to the UK VAT system. However, regardless of whether the outcome of this consultation will be binding on the UK its outcome will be important, given the cross-border nature of digital publications. The UK also remains subject to all relevant EU law (including VAT law) until the time that the exit from the EU is finalised.

The Economic and Financial Affairs Council today debated a proposal for a Council Directive amending Directive 2006/112/EC, as regards rates of value added tax applied to books, newspapers and periodicals. The Commission proposes to grant all Member States, the possibility to apply the same VAT rates to electronically supplied publications as Member States currently apply to printed publications, which include reduced, super-reduced and zero rates. It is further proposed that Member States should maintain discretion to set VAT rates for publications and restrict the scope of reduced VAT rates (so Member States can choose not to introduce it if they prefer). The supply of pure music and video content would continue to be taxed at the standard VAT rate, as would publications that predominantly consist of music and video content. Member States would have the discretion to specify the term “predominantly” in their national VAT law. This solution would also allow Member States to continue to apply a reduced rate for audio books, audio newspapers and periodicals for people with sight loss.

Overall there was support for the proposal although a number of Member States only offered that on the basis that implementation was optional. A good number of Member States expressed concerns about allowing super reduced or zero rates while others felt that was appropriate, particularly for those countries with an equivalent super reduced rate for physical publications. Most Member States expressed concern at any attempt to introduce any wider reduced rates as part of this proposal believing it would be more appropriate addressed later in the year following the Commission’s review (to which CTG has responded). A number of Member States expressed strong reservations about any extension of reduced rates on the basis it was counter to the VAT system, threatened revenues and could increase the chance of additional complexity or compliance issues.

Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC, as regards rates of value added tax applied to books, newspapers and periodicals

Whereas:

(1) Council Directive 2006/112/EC3 provides that Member States may apply reduced rates of value added tax (VAT) to publications on any means of physical support. However, a reduced VAT rate cannot be applied to electronically supplied publications, which have to be taxed at the standard VAT rate.

(2) In line with the Commission’s Digital Single Market Strategy and in order to keep abreast of technological progress in a digital economy, Member States should be enabled to align the VAT rates for electronically supplied publications with lower VAT rates for publications on any means of physical support.

(3) In the Action Plan on VAT , the Commission outlined that electronically supplied publications should be able to benefit from the same preferential VAT rate treatment as publications on any means of physical support. To achieve this aim, this needs to include the possibility for all Member States to apply to the supply of books, newspapers and periodicals either a reduced VAT rate or lower reduced VAT rates including the possibility of granting exemptions with deductibility of the VAT paid at the preceding stage.

(4) Since 1 January 2015, VAT on all electronically supplied services has been levied in the Member State where the customer is based. Given the implementation of the destinationbased principle, it is no longer necessary to apply the standard rate to electronically supplied publications in order to ensure the establishment and the functioning of the internal market and to avoid distortion of competition.

(5) In order to prevent an extensive use of reduced VAT rates to audio-visual content, Member States should be enabled to apply a reduced rate to books, newspapers and periodicals, only if these publications, both on any means of physical support or electronically supplied, do not wholly or predominantly consist of music or video content.

(6) Member States should maintain discretion to set VAT rates for publications and restrict the scope of reduced VAT rates.

(7) Directive 2006/112/EC should therefore be amended accordingly

Article 1

Directive 2006/112/EC is amended as follows:

1. In Article 98(2), the second subparagraph is replaced by the following: ‘The reduced rates shall not apply to electronically supplied services with the exception of those falling under point (6) of Annex III.’
2. In Article 99, the following paragraph 3 is added: ‘3. By way of derogation from paragraph 1 of this article, and in addition to the rates referred to in paragraph 1 of article 98, Member States may apply reduced rates lower than the minimum laid down in this Article or may grant exemptions with deductibility of the VAT paid at the preceding stage to goods and services referred to in point (6) of Annex III.’
3. In Annex III, point (6) is replaced by the following: ‘(6) supply, including on loan by libraries, of books, newspapers and periodicals either on all physical means of support or supplied electronically or both (including brochures, leaflets and similar printed matter, children’s picture, drawing or colouring books, music printed or in manuscript form, maps and hydrographic or similar charts), other than publications wholly or predominantly devoted to advertising and other than publications wholly or predominantly consisting of audible music or video content;’