Brussels will take France and Luxembourg to the EU Court of Justice for having lower than usual tax rates for ebooks, a move that has helped online retailers such as Amazon save billions of euros.
The European Commission, the EU’s executive arm, contests the decision made by France and Luxembourg to offer companies a value added tax (VAT) rate on sales of electronic versions of books at 7 per cent and 3 per cent respectively.
Brussels said that EU member states are not allowed to make any tax discrimination based on specific products, unless otherwise agreed by the majority of the bloc’s 27 countries. VAT for ebooks should be the same as on any other standard goods or services.
“Failure to comply with this legislation by France and Luxembourg results in serious distortions of competition to the detriment of traders from other EU member states,” the commission said in statement on Thursday.
“This goes against the basic principle of European tax policy: fair competition within the internal market.”
Several countries including the UK have complained that the lower taxation regime offered to ebooks is having a negative impact on the sale of traditional books, which are already facing a deep crisis due to consumers changing habits.
“Questions concerning the tax treatment of physical books and ebooks must certainly be tackled,” said Algirdas Šemeta, the EU tax commissioner.
“And this is exactly what the commission is doing as part of the wider review of reduced VAT rates,” he added.
The Commission plans to come up with a draft proposal on VAT rules for e-services by the end of the year, with an intention to set equal rules for electronic and physical books by 2015.
A number of states are also angered about how online retailers are avoiding to pay taxes in the country where sales has actually taken place by re-routing the sale through a state with a more attractive tax regime.
At a recent G20 meeting in Moscow, Britain as well Germany launched a joint plan to crack down on tax avoidance by multinational groups.
The move follows a damning report by the Organisation for Economic Cooperation and Development that showed how large companies were country-hopping to pay the least possible amount in taxes.
“Multinationals should not be able to capture globalisation to unfairly reduce their taxes,” said Wolfgang Schäuble.
In the UK the government has been under mounting pressure to tackle multinationals avoiding taxes since it emerged that US giants such as Starbucks, Apple and Amazon had set up intricate transaction mechanism to reduce their tax bills to virtually zero.
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