The European Commission has launched an infringement procedure against France and Luxem-bourg in respect of reduced VAT rates applied to digital books by these states. EU legislation allows Member States to apply reduced VAT rates to a limited list of goods and services set out in Annex III to the VAT Directive. Downloading of digital books is regarded as a service supplied electronically, which is not included in this list and cannot therefore be taxed at the reduced rate according to the Commission.

The Commission is considering the convergence of the VAT rates applicable to traditional books and to digital books in proposals planned for the end of 2013. However, the reduced rate currently applicable to traditional books cannot be extended to digital books without amending the VAT Directive.

France and Luxembourg have applied reduced rates to digital books since 1 January 2012 – the rates are 7% for France and 3% for Luxembourg.

According to the Commission, this situation has created distortions of competition that are damaging to economic operators in the other 25 Member States since digital books can easily be purchased in a State other than the one where the consumer resides.

The Commission considers that these reductions might not be in line with European law and has sent formal notices to both Member States. This first stage of infringement procedures allows the two countries to explain their positions. France and Luxembourg have one month to submit their comments. If the information provided is not regarded as sufficient, the Commission could formally state that there has been an infringement and send a reasoned opinion to the two countries asking them to change their laws, which is the second stage of the infringement procedure.