VAT and electronic publications: the next chapter

17 March 2017

As technological advances continue to be made, it is important that the law adapts and is flexible enough to accommodate these developments. The position is no different for VAT law, especially when it is noted that the core provisions applied in the UK were drafted over two decades ago. As new products and experiences grow popular, the risk of the law becoming outdated becomes more real. This is precisely the case when it comes to electronic publications, which VAT law continues to grapple with.

Although the UK courts have had to advise on whether a photobook constitutes a book for VAT purposes, the question of whether an electronic publication should be treated the same as a conventional publication for VAT purposes has not yet had to be determined. Consideration has however been given to this question by the Court of Justice of the European Union (“CJEU”), where a number of cases have sought advice on various questions.

In Case C-219/13 K Oy, a Finnish court sought advice on whether treating books provided on a physical means of support (e.g. a USB stick) differently to a conventional book for VAT purposes resulted in an impermissible difference in VAT treatment. The CJEU did not consider that any difference was always impermissible, taking the view that the answer was to be determined on a state by state basis. The factors to be taken into account for such a determination included the substitutability of the different types of publication and the development of the electronic publication market in that particular Member State.

This case was followed by proceedings taken against France and Luxembourg, where the European Commission had challenged the application of the same rate of VAT to both conventional and electronic publications. The CJEU held that electronic publications constituted electronically supplied services, specifically excluded from the reduced-rate by European legislation, such that the actions of France and Luxembourg were unjustified.

Most recently, the CJEU has dismissed another action challenging the validity of the exclusion of electronically supplied services from the reduced-rate. In the Polish reference of Case C-390/15 RPO, questions had been raised about the validity of the relevant exclusion from a procedural perspective and also as to whether the exclusion results in a breach of equal treatment. The procedural question was dismissed first by the CJEU. Although the CJEU then went on to acknowledge that there was a difference in treatment between conventional books and those supplied electronically, this was also held to be justified on the basis that it aimed to create legal certainty and avoid an examination of all electronically supplied services to determine whether they were within the terms of the exemption or not.

Although the cases suggest that the law is yet to catch up on developments (notwithstanding a growing acknowledgement of the technological landscape and the similarities of the two supplies), activity in this space is ongoing and there are a number of Member State governments interested in understanding the required legislative changes to bring the law up to date. More recently, the European Commission itself initiated a consultation in summer 2016 to seek views on this area from businesses, members of the public and representative/industry bodies. The outcome is yet to be reported.

In light of the above, and the upcoming developments, it is imperative for businesses to keep this issue on their agendas. This is especially so given that the UK is very likely to have a free reign on zero and reduced rates following its exit from the EU. Although the exact terms of the deal the UK will secure will remain unclear for some time, this does not mean that the issue should be ignored until then nor that the outcome of the European consultation should be ignored. In such an inter-connected world, it is evident that global developments will be taken serious notice of by lawmakers and tax authorities alike.

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