Sunday 28 October 2012 11:40 pm

HMRC taken to European court over ebook VAT

THE GOVERNMENT may be forced to scrap VAT on ebooks if a legal challenge from a London law firm is successful.Berwin Leighton Paisner (BLP), acting on behalf of an unnamed client, is challenging HM Revenue and Customs (HMRC) over its decision to charge the standard 20 per cent rate of VAT on ebooks while printed books do not have the tax applied.Alan Sinyor, head of VAT at BLP, said that ebooks and print books should qualify for “fiscal neutrality on the grounds that they are the same from the perspective of meeting the customer’s needs”.If the case before the UK tribunal is successful, HMRC may have to remove VAT on ebooks, which could have a knock-on effect of reducing their price.However, according to VAT expert Richard Asquith at accounting firm TMF, one unintended consequence of a BLP victory could be that the EU orders the UK to levy VAT on printed books.“The UK was only allowed to keep the reduced rate on printed books because they already had it when they joined, so if [BLP] wins, the question is, which rate should it be?” Asquith said.“Most member states say ebooks should be at the top rate, so [raising print prices] is a possibility.”The EU last week ordered France and Luxembourg to scrap their reduced rates of VAT on ebooks and charge the standard rate, a move that will hit companies such as Amazon, which bases its ebook operation in Luxembourg.It is also set to launch a consultation on the issue, and is keen to reach a Europe-wide agreement.“The consultation is a more likely solution,” Asquith said.