The European Court of Justice released a new ruling last week that will keep ebook prices higher in Europe. In a confusing ruling which likely only makes sense to madmen and lawyers, the ECJ ruled that there was no reason that EU member nations can't collect different amounts of VAT (value added tax) on print vs digital books.
The ruling (K Oy case C-219/13), which you can find at the end of this post, was made at the request of a Finnish publisher. In addition to printing books and releasing audiobooks, that publisher also released ebooks on CD and USB thumb drive.
Under EU tax regulations, ebooks are assessed a higher tax rate than paper books, but when the Finland tax authorities tried to collect the higher rate the publisher argued that the ebooks on CD were physical books, and thus should be assessed at the lower tax rate.
The ECJ disagreed - mostly - and ruled that there was nothing to stop Finland from collecting the higher tax rate on those ebooks on CD. The ruling doesn't actually say that the higher tax rate is required, just that it is not against the rules.
While this doesn't preclude an EU member state following in the footsteps of France and Luxembourg and lowering the tax rate on ebooks, it does suggest that the EU could move in that direction.
If you're wondering why one type of book can be taxed at a higher rate than another type of book, there's a simple explanation: lawyers.
To be more exact, EU tax regulations require member states to collect a certain level of tax on all good and services. Some items, like books, were granted an exception and are taxed at a lower rate. eBooks, on the other hand, are not classified as books under EU tax regulation. eBooks are (still) classified as a service, and thus they are taxed at a higher rate than paper books.
Not everyone agrees with the regulation, and in fact a couple countries have defied it. First Luxembourg and then France illegally lowered the tax rate they collect on ebook sales so that ebooks would be charged at the same rate as books (3% in Luxembourg, 5.5% in France).
Jokingly referred to as the Amazon tax loophole, Luxembourg's lower tax rate encouraged some ebook retailers, including Amazon and even small fry like Bilbary, to relocate their operations to the Grand Duchy.
Naturally this upset the local ebook retailers who could not make a similar move and thus were put at a disadvantage, but this tax loophole is at best a fleeting one. Starting in January 2015, a change in EU tax regulations will close the loophole. eBook retailers will be required to collect tax based on where the customer is located, not based on where the retailer is located.
The first subparagraph of Article 98(2) of and point 6 of Annex III to Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2009/47/EC of 5 May 2009, must be interpreted as not precluding, provided that the principle of fiscal neutrality inherent in the common system of value added tax is complied with, which is for the referring court to ascertain, national legislation, such as that at issue in the main proceedings, under which books published in paper form are subject to a reduced rate of value added tax and books published on other physical supports such as CDs, CD-ROMs or USB keys are subject to the standard rate of value added tax.