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C-502/13 Luxembourg and C-479/13 France:

Application of a reduced VAT rate to a supply of digital or electronic books

ECJ ruled that French Republic and Grand Duchy of Luxembourg have failed to meet the VAT Directive requirements by applying the reduced VAT rate to the supply of digital or electronic books.

On 5 March 2015 ECJ issued the ruling in the proceedings’ between European Commission and France and Luxembourg. The subject of the disputes was the application of reduced rate of 3% (Luxembourg) and 5% (France) to the supply of electronic books (“e-books”).

The judgment

ECJ ruled that France and Luxembourg have failed to meet the VAT Directive requirements by applying the reduced VAT rate to the supply of digital or electronic books.

According to the stipulations of the EU VAT Directive, the reduced rate may be applied only to the supplies of goods and services referred to in Annex III of that directive. The Annex III expressly refers to the supply of books on all physical means of support when providing list of goods or services to which reduced VAT rate can be applied.

Admittedly, in order to be able to read an electronic book, physical support, such as computer, is required. But such support is not included in the supply of the e-book. Therefore, due to lack of physical means of support, the supply of e-books cannot be subject to the reduced VAT rate.

That interpretation is also supported by the Article 98 (2) of the VAT Directive which excludes the application of the reduced VAT rate to electronically supplied services and supply of e-books can be categorised as such (it is carried through internet or an electronic network, essentially automated, involves minimal human intervention and it is impossible to ensure in the absence of information technology).

Following the above, the supply of e-books is subject to standard VAT rate, while the reduced rate may be apply only to the supply of books on physical means of support.

Implications of the judgement for taxpayers in Croatia

The Croatian VAT Act prescribes that books with scholarly, scientific, artistic, cultural and educational contents; textbooks for education, for elementary, secondary and tertiary education, in all physical forms, are subject to reduced rate of 5%. Accordingly Croatian VAT legislation is in line with the stipulations of the VAT Act by limiting the application of the reduced rate to supply of books in their physical form. E-books are taxed under standard VAT rate of 25%.

Rulings of the Court of Justice of the EU - VAT

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