The Court of Justice of the European Union (CJEU) issued two decisions on 5 March 2015 related to the application of reduced VAT rates to eBooks in France and Luxembourg. The proceedings originally started in 2013 when the European Commission decided to refer these two Member States to the CJEU for failing to fulfil their obligations under Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (the “VAT Directive”) by applying reduced VAT rates to eBooks. The Commission argued that eBooks should be considered as an “electronically provided service” and, as such, could not benefit from reduced VAT rates (5,5% in France and 3% in Luxembourg), these rates resulting in a distortion of competition within the internal market.
CJEU: Member States cannot apply reduced VAT rates to eBooks
In two separate decisions, the CJEU upheld the action of the Commission and confirmed that France and Luxembourg failed to fulfil their obligations.
• In the first case, European Commission v France, the Court emphasised that the goods and services to which a reduced rate can be applied are listed in Annex III to the VAT Directive; regarding books, only the supply of books “on all physical means of support” can be subject to a reduced VAT rate. The Court held that eBooks are excluded from this provision since they are supplied without the physical mean of support enabling consumers to read them:
“Admittedly, in order to be able to read an electronic book, physical support, such as a computer, is required. However such support is not included in the supply of electronic books.”
Furthermore, the Court took the view that the supply of eBooks shall be considered as an “electronically supplied service”, these services being specifically excluded from the application of reduced VAT rates in Article 98 of the VAT Directive.
• In the second case, European Commission v Luxembourg, the Court highlighted that Member States, when they want to apply VAT rates lower than 5%, need to ensure that these rates comply with EU legislation; the CJEU then drew the same conclusions as in the first case and confirmed the exclusion of eBooks from the goods and services benefitting from reduced VAT rates:
“The application of a reduced rate of VAT to the supply of electronic books does not comply with Article 98(2) of the VAT Directive. In those circumstances, without there being any need to consider whether the other conditions set out in Article 110 of that directive are met, the derogation provided for by the latter provision cannot justify the application by the Grand Duchy of Luxembourg of a reduced VAT rate of 3% to the supply of electronic books.”