E-books and iTunes to face price hike as EU tax rules enter into force - Main contents

BRUSSELS - E-books and downloaded music are among products set to become more expensive under new EU sales tax rules which entered into force on New Years’ Day.

VAT on digital products such as ebooks, music downloads, and apps used to be charged in the country of the supplier. But as of Thursday (1 January) VAT will be payable in the country where the digital product is bought.

The move is an attempt to harmonise VAT rules across the EU but also a bid to prevent firms like Amazon, Apple and a number of US internet service providers from routing their European sales through low-tax countries such as Luxembourg, where the VAT rate is just 3 percent.

All companies which sell telecoms, broadcasting or digital services will be hit by the new rules.

In response, Amazon has indicated it will increase the price of e-books according to the tax rate levied in the host country.

To keep Luxembourg from blocking the changes, which needed unanimous support from all EU governments, the Duchy will be paid up to €1.1 billion in compensation from the other 27 EU countries to make up for the lost tax revenues over the next three years.

Countries with higher rates, including the UK, Spain, Italy and Germany, all of whom levy between 19 and 22 percent, will be the main beneficiaries.

The UK government, which has a 20 percent VAT rate, expects to the change to bring in an extra £300 million per year (€375 million).

Luxembourg has come under recent pressure over its low tax regime.

Along with Ireland and the Netherlands it is currently subject to a competition probe by the European Commission into whether tax agreements with US multinationals constitute state aid.

Meanwhile, the so-called LuxLeaks investigation uncovered evidence that Luxembourg’s tax authorities had allowed at least 340 international firms to pay as little as 0.25 percent tax on their profits.

Many of the decisions taken when Jean-Claude Juncker, now president of the European Commission, was prime minister.