I do wonder whether the legislation back in the 1970s would have extended the zero-rating to digital versions of newspapers, had they existed at the time. In other words, the tablet, website and smartphone editions of the newspaper that readers usually pay a subscription for on a monthly basis.
After all, the reason for the original zero-rating was linked to the social policy of increasing literacy in the country, so surely it is fair to allow zero-rating for all the different mediums now available? That was the taxpayer’s argument in the FTT case of News Corp UK and Ireland Ltd (TC06385).
The case
The judge spent a lot of time reaching the conclusion that the editorial content of newsprint and digital versions of The Times, Sunday Times, The Sun and Sun on Sunday was largely the same. Reader behaviour seemed to be the same in both cases, ie proceeding through both versions in a logical fashion on a page by page basis.
HMRC’s view is that zero-rating only applies to newsprint versions and that all other formats are excluded from Item 2, Group 3, Sch 8, VATA 1994 and are therefore standard rated. The taxpayer’s view was that “legislation, once enacted, had to be kept up-to-date with, inter alia, technological advances” The phrase used was that the legislation should be “always speaking.”
Analysis
The key fact that went against the taxpayer was that Group 3 only zero-rates the supply of ‘goods’ and not ‘services’. The digital versions offered by the taxpayer were clearly supplies of ‘electronic services’ and not ‘goods.’ To be classed as goods, the item being sold must be tangible, which is clearly not the case for the non-paper versions of the newspapers. To quote from the tribunal report:
“In my view, to extend Item 2 Group 3 beyond the supply of goods (newsprint newspapers) to cover the supply of services (digital newspapers) would be an impermissible expansion of the zero rating provisions. It is clear that the provisions of Item 2 Group 3 should be construed strictly and that this therefore, in my view, prohibits the application of the ‘always speaking’ doctrine to extend the scope of zero rating to apply to digital editions of the titles.”
Fiscal neutrality
There was a separate issue about whether it was unfair for VAT to be charged on digital versions, but not on printed editions. Did this breach the principle of fiscal neutrality, which is an important part of EU law?