On Dec. 1, 2016, the European Commission announced it is submitting a proposal to pass legislation that would empower individual countries in the European Union to offer reduced value-added tax (VAT) on electronic publications, particularly e-books.
This is the latest and possibly penultimate step in a long process of introducing competitive tax rates for e-books, which are currently taxed at or near the standard VAT rate in most countries across Europe, which is often twice as much or more as for print books. For the proposal to take effect, it needs to be approved unanimously by each of the 28 ministers who sit on the Economic and Financial Affairs Council. A vote is expected to take place sometime this year.
“We are rejoicing about this excellent move, as we have been lobbying for this for many years,” said Fran Dubruill, director of the European and International Booksellers Federation. “And we see no reason for the ministers to object, as even if the legislation is passed, it does not oblige countries to lower VAT rates on e-books.” The move has already been supported by several European governments, including those of France, Germany, Italy, and Poland, among others.
Currently in the E.U., only Denmark and Bulgaria don’t discount VAT on print books. Hungary has the highest e-books VAT rate at 27%, while most countries hover around 20%–25%. Several countries, starting with France in 2010 and followed by Luxembourg, Italy, and Spain, have tried to lower VAT on e-books to put it on par with VAT on print; in all instances, the reductions were challenged by the European Court and the rates reverted back to the higher numbers.
The hope is that a lower VAT on e-books can boost the overall European book market, which has seen declines in print sales over the past several years. Unlike the situation in the U.S., in most E.U. countries the losses in print sales have not been offset by new revenue generated from e-books. Outside of the U.K. and Ireland, where the VAT rate on e-books is set at zero due to a preexisting exception, the market share of e-books relative to all books remains in the single digits in all E.U. nations.
The low rate of e-book adoption can be attributed to several factors, some of which are country specific. In Sweden, for example, where e-books account for less than 1% of the trade market and carry a 25% VAT, readers are gravitating toward alternatives to outright ownership, among them subscription services such as Storytel (which this year purchased Danish e-book subscription service Mofibo) and e-book borrowing from libraries.
“This initiative has been long overdue,” said Ronald Schild, CEO of MVB Marketing- und Verlagsservice des Buchhandels, which is the technical and digital subsidiary of the German Publishers and Booksellers Association. “It is just incomprehensible why digital books should be taxed differently to physical books. E-books and their readers have been punished for almost 10 years by higher VAT rates. I am personally very happy that common sense has prevailed.”
Jens Klingelhoefer, managing director of Bookwire, a leading European e-book aggregator and distributor, echoed Schild:“The industry in Europe has been waiting for this decision for a long time now. The political will to align VAT for e-books to the reduced VAT for print books has been there all the time in the German government; only the E.U. VAT Directive was holding Germany, France, and some other countries back from reducing VAT for digital books.”
Klingelhoefer added that he believes the move will indeed spark more interest in e-books overall, from consumers and publishers. “Today digital sales and profitability are heavily impacted by lower prices and higher VAT—a double impact,” he said. “So an equal VAT will help to improve profit margins as well as allow more competitive pricing. Independent publishers especially will benefit from the reduced VAT, as their digital pricing is usually more customer and market driven compared to the pricing of traditional big publishing groups. Consequently, this will help publishers to cope better with the digital transformation and increase their efforts to shift from a print to a multichannel and multiformat economy.”
That sentiment is echoed in Spain by Javier Celaya, director of Dosdoce, a Madrid-based consultancy that studies the digital publishing market. “The European Commission’s move to change VAT law to allow a lower rate for e-books is good news for everyone in the publishing world—readers, authors, distributors, retailers, and publishers—because it will foster digital sales across Europe,” Celaya said. In Spain, the e-book VAT rate is currently 21%, while print books carry a 4% VAT rate, and a natural outcome of lowering VAT will make e-books more competitive. According to Celaya, the EC has gone so far as to predict that if member states lower their e-book VAT rates, e-books sales will grow to 20% of total sales by 2021.
Asked whether lower VAT would have the unintended consequence of profiting the largest and most dominant players in the market such as Amazon and Apple, the Dubruill demurred. “Between 70% and 87% of booksellers in Europe have e-books for sale to their customers, so in this regard we believe the benefits will be quite democratic,” she said.