France in new digital tax challenge to EU

France is to propose in early February that it will cut the VAT rate on digital newspapers and magazines from 21% to 2.1% bringing it in line with the country’s current rate for print media and in contrast to the existing UK regime which levies a 20% tax on digital news and 0% for print.

Consequently the UK is looking to block such digital tax breaks through the European Union (EU) and European courts given their potential to undermine the country’s booming UK digital media industry.

In implementing its reforms France is also challenging the European Commission’s (EC) view that the higher, standard VAT rate should be charged on digital newspapers and e-books.

EC acts to block reduced digital VAT

The EC issued court proceedings against France and Luxembourg last year for their use of reduced VAT rates on e-books. Luxembourg and France currently levy their respective reduced VAT rates of 3% and 5.5% on e-books. This compares to the UK which charges 20% on digital e-books but 0% on the printed books.

The European Court of Justice (ECJ) papers state that there is no basis in the EU VAT Directive for a member state to charge reduced VAT rates on digital print. In addition, they indicate that Luxembourg’s 3% rate is below the minimum 5% reduced VAT rate permitted by the VAT Directive. France may therefore now face the same challenge if it cuts digital newspapers to 2.1%.

Head of Tax Richard Asquith commented: “The e-book ECJ hearings are imminent following pressure by the UK Treasury and German Finance Ministry. This new French digital VAT cut is aimed at giving the failing French newspaper sector a direct tax subsidy.”