March 9, 2015

EU: Ebooks are not books because taxes

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The seamy underbelly of European sales tax uniformity.

The seamy underbelly of European sales tax uniformity.

In a development certain to remind you that you need to do your goddamn taxes already, the European Commission just handed down a big decision regarding tax law as regards ebooks. The decision is centered on the European Union value-added-tax (EU VAT), i.e. sales tax, charged on physical and ebooks. As the Wall Street Journal reports, France and Luxembourg’s greatly reduced VAT rates for ebooks were deemed a breach of EU law, at least for now.

In its ruling Thursday, the court argued that a reduced rate can apply only to physical books and that even though e-books can be read on tablets and computers, they should be considered “electronically supplied services,” not goods. According to EU law, reduced VAT rates can apply only to goods, not e-services.

The EC began its initial investigation of France and Luxembourg in 2012, as part of an ongoing program meant to create uniform VAT rates across the Union. A key part of that program, which closes the tax loophole that allowed retailers like Amazon to sell their ebooks with reduced VAT by incorporating in countries like Luxembourg, went into effect at the beginning of the year.

As we’ve previously covered, Luxembourg is a Dinoysian pleasure-dome of shameless legalized tax evasion for big business where Amazon maintains a shell corporation. The new law requires Amazon and Apple et al to charge the VAT of the customer’s country, not their “own”, reflecting similar state rulings passed in the United States.

Ebooks were slow to catch on in the EU, but they appears they might (maybe one day sort of) be gaining momentum. Amazon’s a notorious EU tax shirker and this ruling closes the book (see what I did there?) on at least one kind of tax dodge, while also leveling the the playing field for brick-and-mortar businesses (though smaller retailers who sell online are already complaining about the new law). This decision also fits into the EC’s previously stated goal of reducing Luxembourg’s stature as one big tax loophole. Still, the question remains: why not classify ebooks as a good?

“Electronically supplied services”, according to the EC’s literature, are “delivered over the Internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology”, which is a very touching and humanist way of thinking about books. After all, you can’t gaze into the hopeful sparkling eyes of a bookseller as they ring you up for their favorite handsold ebook. You can’t browse a used shelf to discover a hidden gem of an ebook. You can’t smell an ebook (technically).

But as Reuters points out, publishers and booksellers alike see the current ebook/print VAT disparity as a hindrance.

“We call on the European Commission to quickly take the initiative to amend the law to reflect technological progress and eliminate a serious obstacle to the development of the ebook market,” they said in a statement.

The efficient collection of taxes aside, it appears that the EC is tying up loose ends, and this recent decision’s compliance with existing law doesn’t indicate that future VAT reform to address this difference is out of the question. This is, after all, a law that predates the advent of digital and digital-only publishing, and if Europe really wants to get on the good and modern foot by 2020, this law needs to be challenged (and defended) in the modern context.

 

Liam O’Brien is the Senior Sales & Marketing Manager at Melville House, and a former bookseller.

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