Flashback on ECJ Cases – C-219/13 (K) – Reduced VAT rate applicable only to books printed on paper

On Spetember 11, 2014, the ECJ issued its decision in the case C-219/13 (K).

Context: Reference for a preliminary ruling — Common system of value added tax — Directive 2006/112/EC — Article 98(2) — Annex III, point 6 — Reduced rate of VAT applicable only to books printed on paper — Books published on physical supports other than paper subject to the standard rate of VAT — Fiscal neutrality

Article in the EU VAT Directive

Article 98(2) of the EU VAT Directive 2006/112/EC.

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 with the exception of those falling under point (6) of Annex III.
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.

Facts

K is a publishing company whose activities include the publication of general literature and textbooks. It also publishes audiobooks and e-books.
According to the documents before the Court, the audiobooks and e-books published by K are available in the form of electronic files on physical supports such as CDs, CD-ROMs, USB keys or other equivalents which reproduce books originally published in paper form. An audiobook, intended to be listened to, reproduces the written text of a printed book, read aloud, on a physical support such as a CD or CD-ROM. An e-book essentially reproduces the content of a book originally available in printed form, to which it corresponds in principle in external appearance and structure, on a physical support such as a CD or USB key, and may be loaded onto a computer or an appropriate reading device. The e-book versions may, however, differ in content and structure from the printed books.
K applied to the Keskusverolautakunta for a preliminary ruling to establish whether books published on physical supports other than paper, reproducing the written text of a book in paper format, could be regarded as books within the meaning of point 7 of the first subparagraph of Paragraph 85a of the Law on VAT, sales of which are subject to a reduced rate of VAT.
By preliminary ruling of 25 May 2011, the Keskusverolautakunta ruled that only publications printed in paper form or produced by comparable means could be regarded as books, so that audiobooks and e-books published on physical supports such as CDs, CD-ROMs or USB keys could not be considered to be books within the meaning of point 7 of the first subparagraph of Paragraph 85a of the Law on VAT.
The Keskusverolautakunta further stated that the first subparagraph of Article 98(2) of the VAT Directive, read in conjunction with point 6 of Annex III to that directive, and the principle of fiscal neutrality did not preclude the application of a standard rate of VAT to sales of books published on a physical support other than paper, rather than the reduced rate applicable to books published in paper form.
K appealed to the Korkein hallinto-oikeus (Supreme Administrative Court), seeking to have the preliminary ruling of the Keskusverolautakunta set aside and a new preliminary ruling made declaring that books published on physical supports other than paper, such as CDs, CD-ROMs, USB keys or other equivalents, are to be regarded as books within the meaning of point 7 of the first subparagraph of Paragraph 85a of the Law on VAT, sales of which are subject to a reduced rate of VAT.
K argued that it is contrary to the principle of fiscal neutrality for a Member State to apply a reduced rate of VAT solely to books published in paper form, to the exclusion of books published on other physical supports.
The Korkein hallinto-oikeus sought the opinion of the Valtiovarainministeriö (Ministry of Finance). The ministry stated that the tax treatment of books published on a physical support other than paper varied in the different Member States of the European Union. In its view, the Member States can apply a reduced rate of VAT selectively to the supplies of goods and services listed in Annex III to the VAT Directive. They have a wide discretion in this respect. In this context, they are entitled to apply a reduced rate of VAT to books published in paper form and a standard rate to those published on other physical supports.

Questions

1. Do the first subparagraph of Article 98(2) of and point 6 of Annex III to [the VAT Directive], when the principle of fiscal neutrality is taken into account, preclude national legislation under which a reduced rate of VAT is applied to printed books, but the standard rate is applied to books on other physical supports such as a CD, CD-ROM or USB key?

2. As regards the answer given to the question above, is it of any significance

whether a book is intended to be read or to be listened to (an audiobook),
whether there exists a printed book with the same content as a book or audiobook on a CD, CD-ROM, USB key or other equivalent physical support,
that with a book on a physical support other than paper technical features provided by that support, such as search functions, can be exploited?

AG Opinion

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, in the version, as regards the latter, inserted by Council Directive 2009/47/EC of 5 May 2009, must be interpreted as not precluding a national law under which a reduced rate of value added tax is applied to printed books, whereas books on other physical means of support such as CDs, CD-ROMs and USB keys are subject to the standard rate of value added tax, provided that, from the viewpoint of the average consumer of the Member State concerned, the latter are not similar to the former in so far as they do not meet the same needs of that consumer, which is a matter to be ascertained by the referring court.

The reply does not vary according to whether a book is intended to be read or to be listened to (an audiobook), whether there exists a printed book with the same content as a book or audio book on a CD, CD-ROM, USB key or other similar physical product, or whether it is possible to exploit the technical features provided by the physical support other than paper, such as search functions.

Decision

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.

Summary

Application of the standard VAT rate for books on a physical medium other than paper

The first subparagraph of Article 98(2) of and point 6 of Annex III to the VAT Directive does not preclude national legislation according to which books printed on paper are subject to a reduced rate of VAT and, for books on another physical medium, such as a CD, CD-ROM or USB stick, the standard VAT rate applies, provided that the principle of fiscal neutrality inherent in the common VAT system is respected.

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