When is a book not a book? When it’s a digital service and subject to VAT at 20%

booktaxI live in Switzerland, which is not part of the EU, so it took me a while to realise that, in January 2015, the EU started to impose VAT on ebooks and audiobooks. The tax is based on the address of the buyer, not the seller, so when I buy books from Amazon or Audible, I don’t pay VAT. If I lived in the UK, I would have to pay 20% more for the same book.

This is very odd. It has been a long-standing principle in the UK that a purchase tax on books is not appropriate because the government should not be taxing its citizens for gaining knowledge and taking part in their culture. Books are rated at 0% VAT.

According to the British Government, the fact that it now charges 20% for ebooks and audiobooks (the fastest growing segments of the publishing market) is the EU’s fault. The EU issued a Directive on the taxation of digital services that was meant to provide a way of taxing people who are selling things over the Internet into EU countries. In a climate where public opinion is offended by the fact that Facebook paid only £4,327 ($6,643) in corporation tax in 2014, (true, it made a pre-tax loss of £28.5m but it also paid its 362 UK staff a total of £35.4m in share bonuses.) this kind of legislation had some popular support.

Then people across Europe found out that no-one had thought to exclude books from the tax.

In France the government lowered the VAT on e-books. In Luxembourg the government offered a 3% tax on all digital services. The European Commission, the unelected, unaccountable, body that drives uniformity in the EU, initiated legal proceedings against both countries.

Despite this, Germany has also decided to lower the rate of VAT on e-books from 19% to 7% on the basis that reading is reading, regardless of the media and to “facilitate the participation of citizens in cultural life” and support the “essential preservation of the diversity of books, book stores and book prices.”

Meanwhile, the British government continues to take 20% extra from citizens who want to read without printing first, offering as its defense that “The sale of a digital book is classified as an electronic service and attracts the standard rate of VAT under EU law. Legal advice obtained by the government indicates there is no scope to change the VAT treatment of the sale of digital book and similar products under EU law.”

Oddly, Her Majesty’s Government rarely shows this zeal when implementing EU Directives that cost money rather than raise revenue.

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