Turn on your ereader, settle into an armchair and begin reading that novel you’ve been longing to dive into. Your eyes skim across the screen, taking in the flow of words, the artful sentences, the paragraphs, the chapters, the . . . service.
Thought you were reading a book? Not if you are in the European Union. According to the EU, that collection of digital words comprises a “digital service”, taxable at the highest VAT rate per country – 23 per cent if bought in Ireland. Pick up the exact same collection of words in print form, and you’ll pay zero VAT.
That discrepancy might seem a minor irritation for many readers, but France – which was referred to the European Court of Justice in February for defiantly lowering its VAT rate on ebooks to 7 per cent in 2009 – believes the battle over ebook VAT is a central piece of a larger, critical struggle for the survival of European culture, and then growth of an indigenous content industry.
"It isn't just the tax issue," argues Jacques Toubon, former French minister for culture between 1993 and 1995, appointed by the French government to convince other EU member states to reform ebook taxation laws. "In fact, the real question is to see whether, in 10 to 20 years' time, Europe will have a presence in the developing virtual economy."
It is frustrating enough that this “absurd” VAT rate on ebooks encourages most European buyers to purchase them from either Apple’s iTunes or from Amazon, through its European base in Luxembourg. The country – also referred to the Court of Justice with France – charges just 3 per cent VAT on ebooks. European consumers buy ebooks at the tax rate of the country in which the seller is located.
Industry experts estimate that 90 per cent of all ebooks bought in Britain – Europe’s largest consumers of ebooks – are sold through Amazon’s Luxembourg operation.
What really gets Toubon going though – and he is deeply passionate on the subject – is that it isn’t Europe’s writers, publishing houses, online businesses or national coffers that benefit most, but the technology companies in Silicon Valley that have become the gatekeepers of culture, the dominant distributors of content in a digital format.
“We are a continent of 500 million consumers, but we are paying for jobs, businesses and taxes that these businesses are incurring in the US, not in Europe. If we want, in 10 to 20 years’ time, to go on having jobs and a tax base here and to having these virtual enterprises in Europe, we need to have an online European industry like that in the US.”
The VAT situation is his exhibit A in defence of European culture, an entry-level argument for a healthy European-based digital economy; one, he hopes, that eventually spans the creation of content through to its distribution, all taxed at a low and consistent level across the EU.
“But the most pointed question, and the most acute, is that of the actual content. Europe is investing, creating and producing film, music, books, video – the basis for consumption, through these virtual services online, but a large part of the income is not going to the creator, but the technology company,” be it Apple, Google (through ads on its YouTube video service) or Amazon.
Six of the 10 most important publishing groups in the world are European, Toubon notes. "On the basis of this strong European industry, we can launch a strong virtual industry with writers and publishers. They are people who could compete because they are the owners of this content. We have to value our assets ourselves and not freely give our assets to these companies. That's why this story of the publishing industry online is a very important one."
Ebook boom
It's an increasingly valuable industry, too. Sales in ebooks are booming across Europe, if somewhat lagging the market in the US, where more ebooks are now sold than hardbacks. However, a recent study by analyst Forrester predicts Europe will have the largest ebook market in the world by 2017, worth $19 billion.
Toubon says that there are two consequences of the current situation. The first is economic, a case of technology companies determining the market: an ebook publisher has to distribute a book on the terms set by Kindle, not by the publisher of the book.
The second is the cultural consequence. “The [technology] companies don’t have any goal of cultural diversity, but cultural diversity is a European goal and also a goal of individual countries such as Ireland and France. Countries such as Ireland and France have to try to convince the commission and European governments on this issue of disseminating cultural content online. We need support for digital investment, regulations and tax competitiveness.”
That is why he has come to Ireland, to spend a day meeting Irish publishers and government ministers. According to Toubon, relaxing at the end of the day in the lush surroundings of the French ambassador’s residence in Dublin, both groups were supportive of the proposals. On this issue: “Ireland has a very important position both economically, culturally and technologically – and it also presides over the EU presidency.”
Ireland, a base for many multinational and indigenous technology companies, understands the technology sector and digital economy better than many European countries, he says, while also being known internationally for a vibrant cultural history. “And consumers and online readers here want costs to go down and there is also demand in Ireland that ebook schoolbook prices go down.”
So what is he proposing? “We want to amend the directive to create the possibility for members who so wish, to apply the same VAT regime online as for print books.” The current discrepancy “creates a tremendous competitive distortion between the virtual and the paper product”.
This however is an interim solution. The EU is committed to standardising the tax situation on ebooks in 2015. “So at another stage, when the final regime of VAT is adopted after 2015, then we have to do some effort towards harmonisation.” Ideally, harmonisation will be at a very low VAT rate for digital books.
The European Commission is preparing a summary report on the issue at the moment and he hopes the issue will then find its way on to the agenda of the Irish presidency.
Reasons for optimism
Is he optimistic that member states will take up France's proposals? "When you look at it, it's a very difficult question, but it is moving forward. A month ago, it was a subject never raised at all."
The commission is divided on the issue, Toubon adds. “The reason that there is opposition in Europe comes down to a financially conservative mood and the lack of political will in the commission.”
Some influential EU commissioners though, such as Neelie Kroes, vice-president with responsibility for the digital agenda, are pushing for ebook taxation reform.
"Principles of logic and fairness cannot explain this [the discrepancy on VAT]," Kroes wrote last year in an opinion piece for the Guardian . "Whatever the tax rate applied in a given country, a book is a book. All books should be taxed equally."
Several other countries are in favour of amending the directive, including Sweden and the Netherlands. Toubon says European publishers generally “are very favourable”. Importantly, he also says the Germans “seem to be more amenable” to a change that would reduce revenue at a time of economic hardship.
The whole issue is complex because European publishers “are torn between two temptations – to try to get the best agreement with the big technology companies, which increasingly control distribution of content, and on the other side to try to create their own business and transform traditional publishing houses to new technology and online houses”.
The challenge “is how to go online without forgetting the traditional business and how to make a new business in an environment dominated by companies that have not issued from the content side, but the hardware and software side.
“It is a question for society. It is a question for every citizen. It’s a question of the future, not of protection or keeping the status quo. It’s exactly the contrary – it’s to make a future for the industry.”
