End of the road for reduced rates for e-books?

The Court of Justice of the European Union (CJEU) has given judgment in the infraction proceedings brought by the European Commission against France and Luxembourg and has ruled that the supply of an e-book (a book delivered electronically) is a supply of an electronic service and cannot, therefore, benefit from the application of a reduced rate of VAT.

For many years, both France and Luxembourg have applied a reduced rate of 3% to the supply of e-books. In the proceedings, they argued that Annex III of the VAT Directive – which permits the application of reduced rates to the ‘supply of books … on all physical means of support’ – gave them the legal authority to apply a reduced rate. However, the Commission argued – and the CJEU has agreed, – that, in the case of e-books, there is no physical means of support. An e-book is downloaded to, but is not supplied with a physical means of support.

The CJEU confirmed that, in determining the scope of a provision of EU law, its wording, context and objectives must all be taken into account. In doing so, it concluded that the VAT Directive does not permit the application of a reduced rate to the supply of e-books. The supply of an e-book by itself without any physical means of support (such as an e-reader or computer) is not a supply of a book but is a supply of electronic services. By applying a reduced rate, both France and Luxembourg have has failed to fulfil their respective obligations under Articles 96 and 98 of the VAT Directive.

By these judgments, the CJEU has confirmed that the sale of physical books and e-books are different – one being the supply of goods and the other a supply of services. As such, they can legitimately be treated differently for VAT purposes without any infringement of the principle of fiscal neutrality.

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