A recent ruling from the CJEU clarifies the position on VAT on e-books and the like
In Case C-390/15 Rzecznik Praw Obywatelskich (RPO) a request was made for a preliminary ruling on the validity of a reduced rate of VAT in relation to the supply of digital books electronically.
The Court of Justice of the European Union held that the exclusion of digital books, newspapers and periodicals from the application of a reduced rate of VAT where they are supplied electronically is not contrary to the principle of equal treatment and that the VAT Directive is valid from that point of view.
Under the VAT Directive, EU Member States may apply a reduced rate of VAT to printed publications such as books, newspapers and periodicals. Digital publications, by contrast, must be subject to the standard rate of VAT, with the exception of digital books supplied on a physical support (for example a CD-ROM). The Polish Constitutional Court, before which a case was brought by the Polish Commissioner for Civic Rights, doubted the validity of that difference in taxation and asked the CJEU whether that difference is compatible with the principle of equal treatment and whether the European Parliament had been sufficiently involved in the relevant legislative procedure.
In its judgment, the Court finds that the provisions of the VAT Directive must be regarded as establishing a difference in treatment between two situations that are comparable in the light of the objective – the promotion of reading – pursued by the EU legislature when it permitted the application of a reduced rate of VAT to certain types of books. The Court went on to examine whether that difference is justified. It points out that a difference in treatment is justified where it relates to a legally permitted objective pursued by the measure having the effect of establishing the difference and is proportionate to that objective. When the EU legislature adopts a tax measure, it is called upon to make political, economic and social choices, and to rank divergent interests or undertake complex assessments. Consequently, it should, in that context, be accorded a broad discretion, so that judicial review of compliance with such conditions must be limited to review as to manifest error. Against that background, the Court observes that the ruling out of the application of a reduced rate of VAT to the supply of digital books electronically is the consequence of the specific VAT regime for e-commerce. In the light of the constant developments to which electronic services in their entirety are subject, it was considered necessary to make electronic services subject to clear, simple and uniform rules in order that the VAT rate applicable to them may be established with certainty and, thus, that the administration of VAT by taxable persons and national tax authorities is facilitated. By precluding the application of a reduced rate of VAT to electronic services, the EU legislature spares taxable persons and national tax authorities from an obligation to examine, for each type of those services, whether it falls within one of the categories of services that qualify for such a rate under the VAT Directive. Consequently, such a measure must be regarded as being appropriate for achieving the objective pursued by the specific VAT regime for e-commerce. Moreover, to accept that the Member States are able to apply a reduced rate of VAT to the supply of digital books electronically, as is permitted for the supply of such books on all physical means of support, would effectively compromise the overall coherence of the measure intended by the EU legislature, which consists in the exclusion of all electronic services from the possibility of a reduced rate of VAT being applied.
As regards the obligation to consult the European Parliament during the legislative procedure, the Court points out that this obligation means that the Parliament is consulted afresh whenever the text finally adopted, taken as a whole, differs in essence from the text on which the Parliament has already been consulted, except in cases where the amendments substantially correspond to a wish of the Parliament itself. The Court then examines whether fresh consultation of the Parliament was necessary so far as concerns the provision of the directive limiting the application of a reduced rate of VAT to solely the supply of books on a physical support. The Court holds in this regard that the final text of the provision concerned is nothing other than a simplification of the drafting of the text which was set out in the proposal for a directive and the substance of which has been fully preserved. The Council was thus not required to consult the Parliament afresh. The Court concludes that that provision of the directive is not invalid.