Even Tax Authorities find VAT Rules Difficult to Interpret

The European Court has found against the Luxemburg government in a case involving the supply of e books. In the UK printed publications are zero rated for VAT whereas e publications are standard rated and this has been the cause of lobbying for zero rating to also apply to e books. The obvious issue being that users of e reading devices such as Kindle and the like pay VAT to read a book on the device that they can buy VAT free as a hard copy from a book store.

The Luxembourg tax legislation allowed a super reduced rate of 3% VAT for the supply of digital or electronic books which the Commission decided  meant that Luxembourg had failed to fulfil its obligations under various EC directives. Therefore the supplies should not qualify for the reduced rate of VAT. This decision indicates that the UK government is unlikely to be in a position to treat the supply of e books as zero rate for VAT as the overarching EC regulations would not allow this to be implemented by UK VAT law.

The decision highlight how complex VAT can be, if a tax authority can make errors in understanding it makes it obvious how easy it is for a tax payer to do the same, especially now that new rules relating to VAT and e commerce have been introduced.

If you or your client make supplies of e services it is worth calling our free helpline to make sure that the current VAT rules have been correctly understood and to avoid a VAT exposure.

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