Digital Agenda for Europe
A Europe 2020 Initiative

Action 106: VAT reform - align tax rates for digital content and similar physical goods

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The Digital Agenda for Europe, section 2.1.1, states "Public authorities should play their part in promoting markets for online content. The challenges of convergence should be addressed in all reviews of public policy, including tax matters."

The Commission presented a Green Paper in 2010; it conducted a public consultation early 2011 and published a Communication in December. 2011. On the basis of the outcomes of the public consultation and the study the Commission will elaborate a proposal on the new structure of VAT rates. DG TAXUD is working on an Impact Assessment which will be ready in 2014. Based on that Impact Assessment it will be decided if any future work is needed.

What is the problem?

The VAT Directive, as it currently stands, obliges MS to apply a standard rate of at least 15% and provides for the optional application of a reduced rate, set no lower than 5%, to an exhaustive list of supplies contained in Annex III to the VAT Directive. All electronically supplied services are excluded from the scope of reduced VAT rates. These services are therefore taxed at the standard rate. Electronically services supplied to final consumers within the EU by an EU established supplier are subject to VAT in the MS of establishment of the supplier.

Why is EU action required?

It has major importance to ensure the consistency of VAT rates on cultural products online and offline. For the time being there is a discrimination against online services as they are subject to higher VAT rates than equivalent goods or services of traditional supports. Normally all cultural products and services should be subject to the same (reduced) tax treatment, whether they appear online or offline. The DAE pays particular attention to these issues and promotes their convergence in order to support a widespread development and utilisation of the Internet and related goods and services.

What has the Commission done so far?

  • The Commission launched a work to elaborate a new VAT system which is to enter into force on 1 January 2015.
  • The Commission presented a Green Paper in 2010, conducted a public consultation early 2011 and published a Communication in Dec. 2011. Its third guiding principle states that "similar goods and services should be subject to the same VAT rate". The New VAT system will contain two such elements which are important from the point of view of online media products (eBook, online newspaper and magazine). First, from 1st January 2015, the supply of these products will be taxed at the VAT rate of the MS where the consumer is established. It means that the risk of distortions of competition and relocation will disappear. Second, the alignment of VAT rates applied to printed and online media products was proposed but its details are still undecided.
  • TAXUD organised a public consultation on this issue. The summary report of the outcome was published.
  • DG CONNECT organised a VAT expert seminar on the impacts of alignment of VAT rates applied to offline and online media products.

What will the Commission do next?

  • The Commission presented a Green Paper in 2010; it conducted a public consultation early 2011 and published a Communication in December 2011.  On the basis of the outcomes of the public consultation and the study, the Commission will elaborate a proposal on the new structure of VAT rates. DG TAXUD is working on an Impact Assessment which will be ready in 2014. Based on that Impact Assessment it will be decided if any future work is needed.
Progress Report
Status: Delayed Kalman DEZSERI Contact
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