E-Books no longer subject to the super reduced VAT rate of 3 percent in Luxembourg

Since 2012, Luxembourg applies the super reduced VAT rate of 3 % to the supply of e-books (Circular N° 756 dated 12th December 2011), and no distinction is thus being made between the supply of books and e-books.

The European Commission took another view on this, and started an infringement procedure against Luxembourg (as well as against France, which also applies a reduced rate of 5,5% to e-books) on the ground that such a position distorts the competition within the EU and is not compatible with the VAT Directive.

In its case dated 5th March 2015, the Court of Justice ruled that reduced rates do not apply to e-books, on the ground that they must be considered as an electronically supplied service and not as a supply of good. Even if e-books need a physical support to be read such as a computer or a reader, it is not included in the provision of e-books. Therefore, they must be subject to the standard VAT rate and cannot benefit from any derogation granted to various services and
goods listed in Annex III of the VAT Directive such as paper books. The Court specifies that in the absence of any express reference to the supply of digital books in the Annex, the latter may not enjoy a reduced VAT rate.

The Court is of the opinion that the VAT Directive excludes any possibility of a reduced VAT rate being applied to electronically supplied services and confirms that, in her view, e-books shall be seen as electronically supplied services as defined by the EU regulation 282/2011.

Luxembourg VAT authorities are thus being forced to withdraw its circular 756 with the effect that, from now on, the standard VAT rate of 17% will automatically apply to e-books.

If for the moment e-books represent a small proportion of the turnover of the publishers, it is expected that it will increase significantly in the near future. Luxembourg and France have already officially reacted to this decision, expressing their disappointment that the decision negatively impacts the growth of this industry, and technological developments. Despite the Court decision, the two countries will continue to support an alignment of the VAT rates to books in any format at legislative level.