EU VAT proposals for e-books, reverse charge fail

by Davide Anghileri

The Council of European Union at a meeting today failed to reach agreement on a proposal to reduce the VAT rate for electronic publications, such as e-books and online newspapers, as well as a measure to temporarily apply a generalised reverse charge mechanism for VAT liability.

During the meeting, the Council was also informed on the progress of work done on the EU VAT e-commerce package, and was told that several issues remain unresolved.

VAT rates for electronic publications

The draft directive regarding the VAT rates for electronic publications was intended to align those rates with rates provided for physical publications. Under the current VAT rules (directive 2006/112/EC), electronically supplied services must be taxed at the standard VAT rate, i.e, minimum 15%, whereas for publications on a physical support, member States have the option of applying a reduced VAT rate, i.e., minimum 5%. Some have been authorised to apply VAT rates below 5% (super-reduced rates) or so-called zero rates, which involve VAT deductibility.

During the discussion, Edward Scicluna, Minister for Finance of Malta, which currently holds the Council Presidency, pointed out that the proposal was intended to modernise VAT system for the digital economy in the context of the EU single market strategy and to help the technologic development of the digital economy.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, asked for unanimous support as online and paper publications are comparable and the only way to align the VAT rate between them is through the legislative process, as pointed out by the European Court of Justice.

Moreover, Moscovici said that the draft directive gives greater freedom to EU members because the modification of the VAT rates is not mandatory. Hence, the directive can also be considered economically justified. Furthermore, the directive would increase or at least preserve the freedom of the press as it will give grater access to communications, he said.

Notwithstanding these remarks, the Council did not find a unanimous agreement on the text proposed and therefore the directive was not adopted.

In particular, the Czech Republic minister asked for a more holistic approach that would add all electronic services to the directive to avoid tax fraud. He also pointed out that the freedom to adopt the new VAT rates could put pressure on countries that do not adopt them and possibly create budgetary issues.

After the acknowledging that the proposal failed notwithstanding the great consensus, Moscovici said it was pity that no agreement was reached, because this was a matter of freedom and efficiency of the EU.  Moscovici said that it seems that some countries block some proposals – like those blocked today – with meaningless excuses only to gain other advantages.

VAT reverse charge mechanism

The VAT reverse charge mechanism proposal would temporarily apply a generalised reverse charge mechanism under certain conditions to all domestic supplies above an invoice threshold of €10,000. This is a derogation from one of the main VAT principles and provides that the taxable person will be the person to whom the services or goods are supplied instead of the seller, as stipulated by the current legislation.

The Maltese presidency recalled that aim of the proposal it to combat tax fraud and, in particular, fraud schemes like “missing trader” or “carousel” fraud, where supplies are rapidly traded several times without payment of VAT.

During the discussion, the work done to reach a compromise text was recognized and the proposal received great support. However, ministers pointed out that more work must be done. It was argued that the draft directive could give rise to major legal difficulties and disputes and increase untaxed goods and services.

EU VAT e-commerce

A report of the work on the VAT e-commerce package was also presented. The general objectives of the package are the smooth functioning of the internal market, the competitiveness of EU businesses, and the need to ensure effective taxation of the digital economy.

According to the report, some issues remain unresolved. Specifically, further discussions are needed on the introduction from 2018 of an annual threshold of €10,000 for supplies of telecommunications, broadcasting and electronic (TBE) services, below which the place of supply would remain in the member State of the supplier. In fact, this point is considered essential to simplify and incentivise the business online.

Moreover, the report concludes that more discussion should be undertaken on the invoicing and record keeping rules. The Commission would like to simplify the rules providing that EU sellers could apply their home country rules in areas such as invoicing and record keeping, instead of using the rules of the consumer (potentially 28 member States’ different rules).

Furthermore, the Commission would like to extend the Mini-One-Stop-Shop (MOSS) to distance sales of tangible goods and services to non-taxable persons and distance sales of goods of an intrinsic value not exceeding EUR 150 imported from third countries to non-taxable persons.

Additionally, the commission intends to find an agreement on the elimination of the exemption from VAT of small importations that do not exceed €22.

Finally, further discussion is needed on the extension of making electronic interfaces (such as market places, platforms, portals and similar means) and fulfillment houses (which provide storage and delivery of distance sales, especially to third country operators) liable for collecting VAT, to simplify the collection of VAT as the number of platforms and fulfillment houses is much smaller and easily manageable than the number of third party operators, the report said.

Davide Anghileri

Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.

Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues. He can be reached at

Davide Anghileri

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