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Flashback on ECJ cases C-502/13 (Commission vs. LU) – Reduced rate of VAT of 5.5 percent on electronic books, in contrast with paper books, is not compatible with the EU law

On March 5, 2015, the ECJ issues his decision on the case C-502/13 European Commission v Grand-Duchy of Luxembourg related to the VAT rate applicable to electronic books


Article in the EU VAT Directive

Articles 96 to 99, 110 and 114, Annex III, category 6 of the EU VAT directive 2006/112/EC

Article 96
Member States shall apply a standard rate of VAT, which shall be fixed by each Member State as a percentage of the taxable amount and which shall be the same for the supply of goods and for the supply of services.

Article 98
1. Member States may apply either one or two reduced rates.
2. The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III. The reduced rates shall not apply to electronically supplied services.
3. When applying the reduced rates provided for in paragraph 1 to categories of goods, Member States may use the Combined Nomenclature to establish the precise coverage of the category concerned.

Article 110
Member States which, at 1 January 1991, were granting exemptions with deductibility of the VAT paid at the preceding stage or applying reduced rates lower than the minimum laid down in Article 99 may continue to grant those exemptions or apply those reduced rates.
The exemptions and reduced rates referred to in the first paragraph must be in accordance with Community law and must have been adopted for clearly defined social reasons and for the benefit of the final consumer.

Article 114
1. Member States which, on 1 January 1993, were obliged to increase their standard rate in force at 1 January 1991 by more than 2 % may apply a reduced rate lower than the minimum laid down in Article 99 to the supply of goods and services in the categories set out in Annex III.
The Member States referred to in the first subparagraph may also apply such a rate to children’s clothing and children’s footwear and housing.
2. Member States may not rely on paragraph 1 to introduce exemptions with deductibility of the VAT paid at the preceding stage.

Annex III
List of Supplies of Goods and Services to which the Reduced Rates referred to in article 98 may be applied
(6) supply, including on loan by libraries, of books on all physical means of support (including brochures, leaflets and similar printed matter, children’s picture, drawing or colouring books, music printed or in manuscript form, maps and hydrographic or similar charts), newspapers and periodicals, other than material wholly or predominantly devoted to advertising;


Facts


Questions

The Commission raises a single plea in law in support of its action, alleging that, by subjecting the supply of electronic books to a super-reduced rate of 3% from 1 January 2012, the national legislation is not compatible with the VAT directive.

According to the Commission, the application of a reduced rate of VAT is incompatible with the wording of Articles 96 and 98 of the VAT directive, in so far as such a rate may be applied only to the supplies of goods and services referred to in Annex III to that directive. In the absence of express mention of the supply of digital books in that annex, the latter may not enjoy a reduced rate of VAT. That is moreover confirmed by the wording of the second subparagraph of Article 98(2), which explicitly excludes electronically supplied services from the benefit of reduced rates of VAT, and by the adoption by the VAT Committee of guidelines according to which reduced rates of VAT do not apply to the supply of digital books.

The Commission considers also that the reduced rate of 3%, that is to say a rate which is below the minimum rate of 5% fixed by Article 99 of the VAT directive, to the supply of digital books, may not be covered by the exception provided for by Article 110 of the VAT directive, or in accordance with Article 114 of that directive.


AG Opinion

None


Decision

1.      Declares that, by applying a rate of value added tax of 3% to the supply of digital or electronic books, the Grand Duchy of Luxembourg has failed to fulfil its obligations under Articles 96 to 99, 110 and 114 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax as amended by Council Directive 2010/88/EU of 7 December 2010, read in conjunction with Annexes II and III to that directive and Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC;

2.      Orders the Grand Duchy of Luxembourg to bear its own costs and to pay those incurred by the European Commission;

3.      Orders the Kingdom of Belgium and the Council of the European Union to bear their own costs.


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