When one is confronted by new technology, one can either adapt existing rules to suit the new tech or one can blindly apply the rules - even when it doesn't make sense.
The European Court of Justice chose the second option this week when it handed down a ruling (PDF) which declared that ebooks weren't books, but were actually digital services and should be taxes as such.
Following a several-year-long legal battle, the ECJ ruled that France and Luxembourg were wrong to lower the VAT they charged on ebooks.
From the WSJ:
In its ruling, the court argued that a reduced rate can only apply to physical books and that even though electronic books can be read on tablets and computers, they should be considered “electronically supplied services”, not goods. According to EU law, reduced VAT rates can only apply to goods, not e-services.
Back in 2012 Luxembourg reduced the VAT it assessed on ebooks from 17% to 3%, the same rate it charged for paper books. It was followed a short time later by France,which dropped the tax rate to 5% (and then late last year Malta and Italy followed suit and cut their VAT rates on ebooks from 18% to 5% and 22% to 4%, respectively).
France and Luxembourg were sued by the European Commission in 2013 over this matter, lost, and then appealed to the ECJ. The court ruled against them, and now all four countries will have to raise their rates.
Luxembourg and France have already indicated that they will comply with the verdict while at the same time they plan to push for a revision to EU VAT rules. "Luxembourg is of the opinion that consumers should be able to buy a book with the same VAT rate, be it online or in bookstores. We will continue to advocate for adapting the EU legal framework to technological advancement," the Luxembourg finance ministry said in a statement.
French culture minister Fleur Pelerin told France Inter radio that: "We will continue to push for what is called technological neutrality, meaning the same taxation for books, irrespective if they are on paper or electronic."
While the ruling does fit with existing EU regulations, it is still absurd. While the EU requires that ebooks be taxed as a service, many countries in the EU view ebooks as books and enforce fixed price book laws on their respective ebook markets.
In short, ebooks are denied both the benefit of price flexibility and the benefit of the lower tax rate, resulting in the worst of both worlds.
image by tolworthy