What businesses does this affect?
This won’t have an immediate effect on publishers, but the reforms when approved will allow the UK to lower VAT on e-publications. Should this occur it would affect all publishers.
What is it?
The European Commission has presented a proposal to reform the rules around VAT. The proposal would enable member states to reduce VAT on e-books, enabling them to bring it in line with rates on physical books. The current rules allowed Member States to tax printed publications at reduced (or zero if they previously existed) rates, but not e-publications as they are classed as a service.
Why is it happening?
The legislation was proposed by the European Commission to ensure the VAT system keeps pace with “the challenges of today’s digital economy”, in recognition of the fact that despite the difference in format, e-books and books offer the same reading content.
What timelines should I be aware of?
The European Parliament has voted in favour of the proposal, clearing the way for the European Council to make its autonomous decision on the legislation. However progress took a step back after the Czech Republic blocked the proposal at a meeting of the EU’s finance ministers. As unanimity is required for taxation matters, the meeting concluded with no agreement reached. Negotiations will continue under the Estonian Presidency and the next chance for this proposal to be considered will be in September or October. However, with the UK leaving the European Union a case could be made to the UK government to act unilaterally and make the required change immediately.
How might it affect your business?
Whilst the legislation will not impact publishers immediately, it removes one of the obstacles that has prevented the UK from ending the current tax discrepancy between the treatment of VAT on print and digital products. In the past EU law has been used by the government as one of the reasons why they cannot apply zero-rate VAT on e-books and therefore end the tax on learning. Now that this obstacle is on the way to being removed, the PA will be speaking to the UK government about trying to ensure that VAT is not applied to any type of book now and after we exit the EU. If VAT is removed on e-publications this could lead to higher sales of e-publications.
Where do I go for more information?
The PA’s mini manifesto published in advance of the general election calls on the next government to commit to no tax on learning and therefore remove VAT from epublications. The manifesto can be read here.