Sudden and unexpected reduced VAT changes on electronic publications have added complexity for digital businesses when operating in the EU. In the United Kingdom, for example, changes were announced on April 30 to completely scrap the VAT rate on e-publications and went into effect on May 1. Such changes create a series of compliance headaches.
Generally, digital services are taxed at the standard VAT rate but there are exceptions for electronic publications (e.g. e-books and e-newspapers) that can benefit from reduced rates.
However, for digital businesses supplying electronic publications to customers it is important to understand the definition released by the tax authorities. In India, for example, a reduced GST rate applies only if a physical print book also exists. In Germany, it may also include databases that give access to the ebook.
Sudden and unexpected changes
In the United Kingdom there was a surprise announcement on April 30 to scrap the VAT rate on e-publications. These UK changes had originally been planned to come into effect on December 1, 2020.
In Spain, a sudden VAT rule change (Real Decreto-Ley 15/2020) also added complexity for affected businesses given the speed of the rule change.
The change from a 21% VAT to the reduced Spanish rate of 4% was signed one day, published the next, and went live the following day (April 23, 2020).
Directive allowing reduced VAT rates on electronic publications
First, some background information. Back in October 2018, the European Council agreed - as part of the EU’s digital single market plan - that EU member states could apply reduced rates on electronic publications (e.g. e-books and e-newspapers) thereby aligning EU VAT rules for electronic and physical publications.
Under the previous VAT rules, electronically supplied services were taxed at the standard VAT rate whereas related physical publications (e.g. books and newspapers) benefitted from various reduced rates. The subsequent amended VAT directive allows member states to apply reduced VAT rates to electronic publications. Member states have been free to do so since December 4, 2018.
The introduction of this directive was prompted following a Court of Justice of the European Union (ECJ) decision rejecting France and Luxembourg’s argument that “ebooks should be considered a good rather than a service.”
The ECJ ruling stated that: “The court finds that the VAT Directive excludes any possibility of a reduced VAT rate being applied to ‘electronically supplied services’. The court holds that the supply of electronic books is such a service.”
After this ruling was issued calls for the EU to amend laws to take into account technological change grew louder. This has led to the amended VAT directive that now allows EU member states to apply reduced VAT rates on electronic publications.
EU member states amending VAT systems
During 2019 and into 2020 - as a result of the directive mentioned above - a host of EU member states amended their VAT systems to apply reduced rates to electronic publications.
Here are some examples (in order of introduction date):
- Bulgaria: reduced rate of 9%, effective since July 1, 2020
- United Kingdom: zero rate, effective since May 1, 2020
- Estonia: reduced rate of 9%, effective since May 1, 2020
- Czech Republic: reduced rate of 10%, effective since May 1, 2020
- Spain: reduced rate of 4%, effective since April 23, 2020
- Germany: reduced rate of 7%, effective since January 1, 2020 (note: temporary reduction to 5% from July 1, 2020, to December 31, 2020)
- The Netherlands: reduced rate of 9%, effective since January 1, 2020
- Slovenia: reduced rate of 5%, effective since January 1, 2020
- Austria: reduced rate of 10%, effective since January 1, 2020 (note: temporary reduction to 5% from July 1, 2020, to December 31, 2020)
- Croatia: reduced rate of 5%, effective since January 1, 2019
- Ireland: reduced rate of 9%, effective since January 1, 2019
- Malta: reduced rate of 5%, effective since January 1, 2019
- Portugal: reduced rate of 6%, effective since January 1, 2019
- Belgium: reduced rate of 6%, effective since April 1, 2019
- Luxembourg: reduced rate of 3%, effective since May 1, 2019
- Finland: reduced rate of 10%, effective since July 1, 2019
- Sweden: reduced rate of 6%, effective since July 1, 2019
- Poland: reduced rate of 5%, effective since November 1, 2019
Note: Norway, a non-EU country, introduced a reduced VAT rate of 0% for electronic publications in July 2019.
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