Today on October 2, 2018, a long awaited tax reform was agreed upon within the European Union (EU). Agreement was reached at a meeting of the Economic and Financial Affairs Council to allow member states to apply reduced, super-reduced or zero VAT rates to electronic publications, thereby allowing alignment of VAT rules for electronic and physical publications.

What is VAT?

Unlike U.S. sales tax, which is imposed only on the final consumer, Value Added Tax (VAT) is collected by all sellers of goods and services at each stage of the supply chain. In other words, all suppliers, manufacturers, distributors, retailers and end consumers all pay the VAT on their purchases. EU member states are able to apply applying different VAT rates within certain regulatory boundraries set by the EU.

Alignment to reduced levies applied to paper magazines

For years paper magazines have enjoyed a lower VAT rate compared to digital magazines. This has been an effect from EU regulation not keeping up with the times. As an example, in Sweden most goods and services have a VAT rate of 25%. But EU regulation, with the intent to promote education, have allowed for member states to lower the VAT rate for printed media, so printed Swedish magazines therefore enjoy a VAT rate of 6%.

This was fine and dandy until publishers started to deliver magazines in digital formats. Because then they had to hit the consumer with a 25% VAT rate for the very same content that they would deliver on paper with a 6% VAT rate. According to EU regulation, digital magazines were to be considered a digital service and member states was therefore not to allow for lower taxation on such media.

This was a regulation that simply didn't make sense, but it was a relic from the past when no one thought of magazines being delivered to the readers over the internet.

When will the tax reform come into effect?

The proposed tax reform will give EU member states more flexibility in setting VAT rates and the directive will be adopted without further discussion once the text has been finalised in all official languages. This should be at some point during 2019.

What should the next reform contain?

In our humble view, having different VAT rates in the various EU member states creates an administrative burden on publishers. A platform like RunMags can certainly offload some of that burden via our subscription landing pages that will apply the correct VAT rates depending which country the subscriber resides in, but that does not fully remove the administrative work associated with regular VAT reporting and payment.

The EU member states need to get together and harmonize the VAT rates between the countries so that publishers don't have to apply different VAT rates for subscribers, depending on in which EU country they reside.

More information on the EU VAT reform on digital services

For further details on the VAT reform, please see the press release on the European Council's website.