The CJEU has upheld the Commission’s action against France and Luxembourg for failing to fulfil their obligations under the VAT Directive.

From 1 January 2012 the supply of electronic books is subject to a reduced rate of VAT of 5.5% in France and 3% in Luxembourg. The Commission are of the view that both France and Luxembourg had failed to fulfil their obligations under the VAT Directive.

The CJEU found that the VAT Directive excludes the possibility of a reduced rate of VAT for ‘electronically supplied services’ and that the supply of electronic books is such a service. The CJEU pointed to the fact that a reduced rate of VAT can only apply to supplies of goods and services covered by Annex III to the VAT Directive. The annex refers to the supply of books ‘on all physical means of support’.

The Commission reproves Luxembourg for applying a super-reduced rate of 3% even though the VAT Directive prohibits in principle VAT rates lower than 5%, unless the reduced rates are in accordance with EU legislation. According to the CJEU, as the application of a reduced rate of VAT to the supply of electronic books does not comply with the VAT Directive, the requirement that it comply with EU Legislation is not met.