UK shuns EU e-book VAT cut based on no-deal Brexit fears
The UK is looking increasingly isolated in refusing to implement 2018 EU rule changes which permit a cut on VAT to e-books, audiobooks and online newspapers from 20% to zero, writes Richard Asquith.
This is despite heavy campaigning by David Cameron and others at the height of the Brexit referendum to give the UK more freedom in setting reduced VAT rates.
Chancellor deaf to special interest pleading as Brexit looms
A reduction on e-books in the UK would cost around £200m per annum. However, Chancellor Sajid Javid is weary of any special handouts as the UK heads towards the 31 October Brexit date. He will want to keep any reserves held back for the huge stimulus package that will be required if there is a no-deal Brexit.
EU27 press ahead with e-book subsidy
Twelve other EU member states have already implemented the harmonisation for e-books to the reduced or nil VAT rates long permitted on printed books and journals. These include Austria, Belgium, Finland, Ireland, Poland and Sweden. Germany is the latest, with a cut to 7% sometime in 2020. Norway, not an EU member state but generally obliged to mirror the EU as a condition to Single Market access, has cut its rate on e-books to 0%.
EU finance ministers agreed the change in October 2018 at the EU’s Economic and Finance Affairs Council (ECOFIN). This ended the distinction for VAT purposes in the EU VAT Directive between physical books and their digital equivalent. Under EU VAT regime rules, only goods or services specifically listed in Annex III of the EU VAT Directive could benefit from the reduced rates. This list was created decades ago, before the advent of e-publications.
Despite challenges to the European Court of Justice by France, Luxembourg and Poland, the EU continued to hold that paper-based products only were entitled to the subsidy according to the Annex. This is now amended following the ECOFIN agreement last year.
Full VAT rate freedoms delayed
The EU has plans to provide total discretion to member states on their reduced rates from 2022. This is to be coordinated with plans to introduce a definitive VAT regime. This latter reform would include switching from the current ‘temporary’ system to a destination-based regime with a single EU VAT return for most B2B transactions.
However, this has proved a controversial reform and has already been delayed several times. A number of member states, especially Poland, have requested that the wholesale reform of VAT rates is brought forward and not slowed down by the definitive VAT plans.
You might also be interested in
Richard Asquith is the VP of Global Indirect Tax at Avalara, a global transaction tax technology company. He leads Avalara’s outsourced international VAT compliance service. Richard originally qualified at KPMG in the UK, and then spent over ten years with EY in Hungary, Russia and France.