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EU rules that ebooks are an 'electronic service' and subject to higher tax

EU rules that ebooks are an 'electronic service' and subject to higher tax

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Not all books are equal, said the European Union this week, ruling that ebooks sold in Europe constitute an "electronically supplied service" and so are subject to a higher rate of value-added tax (VAT) than physical books. This means that buying ebooks is likely to become more expensive in some countries, as booksellers raise their prices to pass the cost of increased VAT rates onto customers.

Some countries — like the UK — will not be affected

This change will primarily affect France and Luxembourg — the two countries that prompted the ruling after petitioning the EU's Court of Justice (ECJ) to be allowed to sell ebooks at the VAT rate of paper books. In France, this means the VAT rate will increase from 5.5 percent to 20 percent, while in Luxembourg it will rise from 3.5 percent to 17 percent. Countries that already sell ebooks at the higher tax rate — such as the UK and Germany — will not be affected.

The ruling also won't affect US companies like Amazon, which previously sold ebooks via Luxembourg to take advantage of the country's lower VAT. Legislation that came into force earlier this year closed this loophole, ruling that VAT for digital goods should be levied at the rate of the country the customer is based in.

Both France and Luxembourg said they would campaign for an overhaul of digital VAT in Europe, with French Culture Minister Fleur Pellerin saying: "We will continue to push for what is called technological neutrality, meaning the same taxation for books, irrespective if they are on paper or electronic." According to data from analytics firm Statisa, ebook sales are still growing in Europe. They accounted for 4.5 percent of total book sales in 2013 and are predicted to rise to just over a fifth of total sales by 2017.