New legislation on reduced VAT rates
There has been a delay in the finalization of the proposal of the European Commission allowing electronic books to be taxed at the lower VAT rate, after the EU Member States failed to reach an agreement on the proposals at the Ecofin meeting of 16 June 2017.
21 June 2017
Earlier this year, the Dutch Secretary of Finance replied to questions asked by members of the Dutch House of Parliament regarding new legislation on reduced VAT rates for e-publications. He answered that the reduced VAT rate of 6% for e-publications will probably be included in the Dutch Tax Plans for 2018. That would mean that the reduced VAT rate will be incorporated into law by January 1, 2018. In this alert we would like to inform you about the latest developments on this subject.
Proposal European Commission
On December 1, 2016 the European Commission published its proposal allowing electronic publications to be taxed at the same VAT rate (often a reduced rate or in some EU Member States even zero-rated) as their printed equivalents from 2018. This proposal would put an end to the current discrimination against e-books, online magazines and newspapers. The reduced or zero rate is, however, not applicable on publications containing only or mainly advertising material. In addition, the publication should not solely or mainly contain music or video content. The proposal was approved by a large majority in the European Parliament on June 1. This created the expectation that the EU Member States would reach an agreement during the Ecofin meeting of June 16. However, in the end the Czech representative raised concerns about the proposal and could not support the proposal at this stage. A unanimous approval is necessary to adopt proposals of the European Commission. It is as yet unknown how the proposal will progress further.
European case law
Recently, the European Court of Justice ruled in the RPO case that the exclusion of digital books, newspapers and periodicals from the application of the reduced VAT rate where they are supplied electronically is not contrary to the principle of equal treatment as set out in the European regulations. Other than some might have hoped for, the judgment in the RPO case does not provide grounds to apply the reduced or zero rate to e-books that are downloaded or streamed.
Tax plans 2018
In his reply to questions from MPs regarding the state of progress of the European Commission’s proposal and whether an amendment will be included in the upcoming tax plan for 2018, the Secretary of Finance reported that a reduced VAT rate for e-publications is scheduled to be included in the Tax Plans for 2018, which will be presented on Budget Day. If adopted, the reduced VAT rate for e-books would enter into force as of January 1, 2018.
The actual implementation depends on the outcome of the formation process after the Dutch Parliamentary elections and finalization of the Commission’s proposal in Brussels. The Dutch government supports the Commission's proposal completely. Furthermore, the Netherlands aims for a rapid conclusion of this proposal, according to the Secretary of Finance.
If the European Commission’s proposal is adopted, the by the Dutch Government much desired equality of paper books, newspapers and their digital counterparts will be possible. If the EU Member States agree the proposal will take effect almost immediately, which is 20 days after publication in the Official Journal of the European Union. An agreement is expected at the end of June.
If the Commission’s proposal is adopted before the change of the Dutch legislation, which would apply as of January 1, 2018, we expect that there will be a published approval for entrepreneurs allowing to apply the reduced VAT rate in accordance with new legislation in the period between the entry into force of the proposed directive and the Dutch amendment. If this is not the case, we see opportunities for entrepreneurs to apply the reduced rate before January 1, 2018. It is as yet unknown how and when the proposal will be put to vote at a next Ecofin meeting.
Given the current proposal and the Secretary’s intention we recommend contacting your advisor to analyze your VAT position and to determine a future strategy.
Please contact your VAT advisor if you have any questions about the above.