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September 27, 2017

E-books, Audiobooks and E-papers to be subject to the reduced VAT rate of 2.5% with effect from 1 January 2018

Currently, printed books, newspapers and journals benefit under the current Swiss VAT Act from a reduced VAT rate of 2,5%. In contrast, the electronic versions of such items is currently taxed at the standard VAT rate of 8%. In a significant development, as of January 1st, 2018, Switzerland will apply the reduced VAT rate for e-books, audiobooks and e-papers. Once the new legislation takes effect, books, newspapers and journals (which are not published for the purposes of advertising) will benefit from the reduced VAT rate, irrespective of the medium on which the content is provided.

These changes are welcomed since this will not only significantly simplify the VAT calculation and collection for suppliers offering both formats in Switzerland, but it will also eliminate a systematic distortion between the two forms of publication. Service suppliers should already plan ahead in order to adapt their accounting and ERP-systems, especially when offering yearly or half-year subscriptions that will cover a period past January 1st, 2018.

EU – When will it happen?

Tom Bryant of Alvarez and Marsal UK Taxand LLP comments “This move to change the legislation in Switzerland leads the way in Europe when it comes to VAT legislation catching up with the digital world”  

Despite having made some progress in this area, the EU seems to have hit a bureaucratic brick wall.  Current EU rules allow for printed books, periodicals and newspapers to enjoy a reduced or even zero-rate of VAT.  However, their digital equivalent must attract the standard rate of VAT, the lowest in the EU is currently 17% (minimum permitted is 15%). 

The European Commission put forward proposals for a new Directive stating “In line with the Commission's Digital Single Market Strategy and in order to keep abreast of technological progress in a digital economy, Member States should be enabled to align the VAT rates for electronically supplied publications with lower VAT rates for publications on any means of physical support.”.  This was supported by the European Parliament which went to vote in early June 2017.    This progress then ground to a halt when EU finance ministers met to debate the measure at the ECOFIN meeting on 16th June.  The official wording from the ECOFIN meeting was “despite progress made on the proposal, the Council was unable to reach an agreement at this stage.”

There have been suggestions that there were some concerns raised about potential VAT fraud and there may be a request for a wider review of the VAT treatment of digital services.

Progress in this area by the EU would certainly be welcomed by consumers of digital publications and their creators and suppliers. The proposal is currently subject to some clarifications, such as the extent to which the new rules would apply (i.e. considering other mediums of digital media). This is a space to watch, as the final legislative changes will have to be drawn up once the proposal has made it past the ECOFIN hurdle. 

However, at the rate of progress being made by the EU, the UK may even have a zero-rating of e-books ahead of the EU -  So there may be a Brexit bonus for those avid e-book readers!  Watch this space but be prepared for the long haul.