The Court of Justice of the European Union (ECJ) has ruled that the EU VAT directive is valid under EU fundamental rights even though it excludes electronically-supplied digital books, newspapers, and periodicals from a reduced rate of VAT. The directive does not violate the principle of equal treatment before the law, the Court concluded.
The ruling, Case C-390/15, was delivered by the Court on 7 March, following a request by the Polish Constitutional Court for an opinion regarding the EU VAT directive’s conformity with the principle of equal treatment as set out in article 20 of the Charter of Fundamental Rights of the European Union.
The Polish law is patterned after the EU VAT directive, which provides that digital publications supplied electronically are treated differently from digital publications supplied through physical means. The former are subject to the standard rate of VAT; the latter enjoys a reduced rate of VAT.
The issue was raised by Poland’s Commissioner for Civic Rights, who pointed out that Poland’s internal legislation is not consistent with the Polish Constitution. However, at the same time, the Polish law could not be changed without infringing EU obligations.
Ruling
The ECJ concluded that the different tax treatment in the EU VAT directive must be regarded as duly justified, even if the directive creates a difference in treatment between two situations that are comparable, as they have the same subject matter of the provision and they pursue the same objective that consists in the promotion of reading.
The ECJ said that a difference in treatment can be justified when it relates to a legally permitted objective pursued by a measure having the effect of establishing a difference that is proportionate to that objective
The Court said that when the EU legislature adopts a tax measure, it is called upon to make political, economic, and social choices, and to rank divergent interests or to undertake complex assessments. Consequently, judicial review must be limited to review of manifest error and the EU legislator must be accorded broad discretion.
The Court said that the VAT rate for the supply of digital books electronically must be viewed as part of a specific VAT regime for e-commerce, which includes setting out general rules which can be easily applied by economic operators and are easily verified by the competent national authorities.
Any change would effectively compromise the coherence of legislation, which excludes all electronic services from the possibility of a reduced VAT rate, and would also treat non-electronic services unequally.
Using these standards, the ECJ concluded that doubt cannot reasonably be cast on the directive.
The Court also rejected the argument that the EU Parliament, which was consulted on the draft EU VAT directive, should have been consulted afresh on the final version.
The ECJ said the approved directive was nothing other than a simplification of the draft.
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.
Davide can be reached at [email protected].
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