Different VAT rates for digital and paperback publications in the EU, a breach of ‘fiscal neutrality’? A tentative answer and broader reflection on the coherence of the EU rules prohibiting indirect tax discrimination

Abstract

Should we apply the same VAT rates to digital and paperback publications for the sake of fiscal neutrality? The debate has been raging on for some time but the question has not yet been analysed in detail, nor in the literature, nor even by the Court of Justice of the European Union in its recent decisions concerning the application by France and Luxembourg of reduced rates for e-books. This is the objective of this paper, and also the occasion to suggest a new perspective on the scope and objective of the case-law based VAT ‘principle of fiscal neutrality’.

Notes

1 Rather than ‘harmonisation’, a certain approximation of VAT rates between the Member States was agreed in the early 1990s. Approximation of tax rates proved necessary in order to prevent distortions in an internal market without frontiers and a VAT system that was partially based on the origin system Commission, ‘Completing the Internal Market, White Paper from the Commission to the European Council’, COM (85) 310 final, 6; See also the Preamble to Council Directive 92/77/EEC. For a recent overview of the situation and suggestions for the way forward, see R de la Feria, ‘EU VAT Rate Structure: Towards Unilateral Convergence?’ (2013) Oxford University Centre for Business Taxation Working Paper 13/05.

2 Council Directive (EC) 2006/112 on the common system of value-added tax [2006] OJ L347/1.

3 Article 96 of the VAT Directive.

4 Article 97 of the VAT Directive.

5 Articles 98–101 of the VAT Directive.

6 Article 98 of the VAT Directive. Annex III lists the supplies to which reduced rates may apply.

7 Article 98(2) of the VAT Directive. Many other exceptions have been adopted that are not relevant in the context of this paper. See Arts 102 and following of the VAT Directive.

8 Defined as follows: ‘“Electronically supplied services” as referred to in Directive 2006/112/EC shall include services which are delivered over the Internet or an electronic network and the nature of which renders their supply essentially automated and involving minimal human intervention, and impossible to ensure in the absence of information technology’ (Art 7(1) of Council Regulation (EC) 282/2011 of 15 March 2011 laying down implementing measures for Directive (EC) 2006/112 on the common system of value added tax. See para 2 of that provisions and Annex I of the same regulation for clarifying examples).

9 In fact, Art 98(2) second sentence of the VAT Directive probably only concerns these items together with children's picture, drawing or colouring books, music printed or in manuscript form, maps and hydrographic or similar charts that are also part of the same indent (covered in Annex III point (6) of the VAT Directive), because none of the other supplies that may be subject to reduced rates are likely to be supplied electronically. The only other exception is perhaps the supply of services by writers, composers and performing artists (point 9) as some websites offer music composing services, it being understood that only ‘automated’ such services would qualify as an ‘electronically supplied service’ (in accordance with Art 7 and Annex I of Council Regulation (EC) 282/2011). It is also noteworthy that Annex III point 6 of the VAT Directive covering books and newspapers actually refers to tangible products only (on ‘physical’ means of support), so that this provisions is probably sufficient to exclude e-books and electronic journals from the application of reduced rates, unless we consider that the fact that e-books and online journals are in practice supplied on tablets, readers or computers, means that they could qualify for the reduced rate in the absence of Art 98(2) second sentence of the VAT Directive (otherwise, Art 98(2) second sentence of the VAT Directive is probably redundant).

10 Copenhagen Economics, ‘Study on Reduced VAT Applied to Goods and Services in the Member States of the European Union’ (2007) 6503 DG TAXUD; 12, R de la Feria (n 2), 19.

11 In the European Commission Green Paper on the Future of VAT, it is held that ‘there are still inconsistencies in the VAT rates applied to comparable products or services' (Commission, ‘Green Paper on the Future of VAT, Towards a Simpler, More Robust and Efficient VAT system’ COM (2010) 695 final, 15). While this thus relates to the argument mentioned above that all forms of ‘literary works' should probably, and for the sake of consistency, be subject to similar rate rules, the Green Paper then adds that ‘For instance, Member States may apply a reduced VAT rate to certain cultural products but have to apply the standard rate to competing on-line services such as e-books and newspapers', and uses the term ‘discrimination’ to qualify that situation, which is a legalistic (as opposed to tax policy) argument. Unfortunately, the Green Paper does not however further discuss the question of similarity/comparability. The European Commission Working Document accompanying the Green Paper does not use the term ‘discrimination’, but again refers to consistency and to the fact that books and e-books would be ‘competing products', but again without further discussion (Commission, ‘Commission Staff Working Document Accompanying Document to the Green Paper on the Future of VAT Towards a Simpler, More Robust and Efficient VAT system’ COM (2010) 695 final, 67). In 2013, Commissioner Semeta held that ‘One of the guiding principles of the ongoing revision of VAT rates is that similar goods and services should be subject to VAT at the same rates and that technological progress should be taken into account’ (http://europa.eu/rapid/press-release_IP-13-137_nl.htm). Commissioner Semeta did not, however, expand on the question of whether books and e-books are effectively ‘similar’. It is also noteworthy that the European Commission previously clearly considered books and e-books as being different products (Commission, ‘Report from the Commission to the Council on Council directive 2002/38/EC of 7 May 2002 amending and amending temporarily Directive 77/388/EEC as regards the value-added tax arrangements applicable to radio and television broadcasting services and certain electronically supplied services' COM (2006) 210 final,15).

12 C-479/13 Commission v France [2015] ECLI:EU:C:2015:141 and C-502/13 Commission v Luxembourg [2015] ECLI:EU:C:2015:143. Note that the distortions of competition in question naturally disappeared on 1 January 2015 when all intra-EU supplies of electronically supplied services to non-taxable persons became taxable at destination in accordance with Art 58(c) of the VAT Directive as amended by Art 5 of Council Directive 2008/8 of 12 February 2008 amending Directive 2006/112/EC as regards the place of supply of services (OJ 20 February 2008, L 44/11). In addition, both France and Luxembourg have already announced that they would shortly suppress their reduced rates on e-books.

13 Court decision, para 51.

14 C-174/11 Zimmermann [2012] EU:C:2012:716. Same decision in C-44/11 Deutsche Bank [2012] ECLI:EU:C:2012:484 in which the Court endorsed Advocate General Sharpston's (ad absurdum) reasoning that ‘If all activities partly in competition with each other had to receive the same VAT treatment, the final result would be – since practically every activity overlaps to some extent with another – to eliminate all differences in VAT treatment entirely. That would (presumably) lead to the elimination of all exemptions, since the VAT system exists only to tax transactions’ (conclusions of AG Sharpston, para 60).

15 Reference is made to C-174/08 NCC Construction Danmark [2009] ECLI:EU:C:2009:669, para 44.

16 Zimmerman (n 14) para 50 with reference to C-144/13 VDP Dental Laboratory paras 35–37, and Deutsche Bank, para 45. In C-588/10 Kraft Foods Polska SA [2012] ECLI:EU:C:2012:40, the Court also clearly denied constitutional status to the principle of fiscal neutrality by qualifying it as ‘a fundamental principle of the common system of VAT established by the relevant European Union legislation’ with further reference to its own case law.

17 J Englisch, ‘The EU Perspective on VAT Exemptions', in R de la Feria (ed), EUCOTAX Series on European Taxation VAT Exemptions Consequences and Design Alternatives (Kluwer, 2013) 60–81.

18 Treaty on the Functioning of the European Union [2007] first published in the OJ of 17 December 2007 (C 306) and entered into force on 1 December 2009, following the ratification of the Treaty of Lisbon. A Consolidated version of the TFEU is available at http://register.consilium.europa.eu/doc/srv?l=EN&t=PDF&gc=true&sc=false&f=ST%206655%202008%20REV%207.

19 In its 1959 decision in 14/59 Fonderies de Pont-à-Mousson, the CJEU already held that discrimination results from the ‘dissimilar treatment of comparable situations'.

20 See for example Case C-13/63 Italy v Commission [1963] ECR 165, ECLI:EU:C:1963:20, para 4.

21 G van Hecke, ‘La notion de discrimination', in J Snoy et D'Oppuers (eds), Les aspects juridiques du marché commun (Academia Leodiensis, 1958), 128: ‘tout le traité n'est en quelque sorte que la mise en oeuvre de ce principe fundamental de l'interdiction de discrimination en raison de nationalité’.

22 In general, cases of ‘reverse discrimination’, whereby domestic situations are treated less favourably than cross-border situations, are allowed. See Case 355/85 Cognet [1986] ECR I-3231, ECLI:EU:C:1986:410, para 11; Case 223/86 Pesca Valentia [1988] ECR I-83, ECLI:EU:C:1988:14, para 20. The Court clarified that Member States may discriminate their own residents in so far as this does not affect nationals of other Member States or nationals of the Member State concerned who have made use of their right to freedom of movement within the European Union (C-212/06 Government of the French Community, and Walloon Government v Flemish Government).

23 The prohibition of discrimination under the TFEU (n 14) neither applies to purely domestic situations (Case 44/84 Hurd [1986] ECR I-29, ECLI:EU:C:1986:2; C-132/93 Deutsche Bundespost [1994] ECR I-2715, ECLI:EU:C:1994:254, C-217/08 Mariano [2009] ECR I-35, ECLI:EU:C:2009:160), nor to imports from third States (Cases C-22/08 and C-23/08 Vatsouras et Koupatantze [2009] ECR I-4585, ECLI:EU:C:2009:344), to which the WTO prohibitions of discrimination may apply.

24 See reference at n 3.

25 Case C-174/08 NCC Construction Danmark A/S v Skatteministeriet [2009] ECR I-10567, ECLI:EU:C:2009:669, para 41 (and case law cited) or Case C-549/11 Orfey Balgaria [2012] ECLI:EU:C:2012:832, para 34 (and case law cited). Neutrality in the field of VAT also refers to the need to relieve suppliers entirely of the burden of the VAT payable or paid in the course of all their economic activities (see Case C-174/11 Zimmermann [2012] ECLI:EU:C:2012:716, para 47), which is an aspect of neutrality that will not be discussed here.

26 As noted by J Englisch, ‘If fiscal neutrality is presumed to be a or even “the” reflection of equality in the area of VAT, then any VAT regime that does not comply with the requirements of fiscal neutrality must, by definition, ultimately also constitute an infringement of the equality principle, to be justified according to the standards developed for such infringements', J Englisch, ‘The EU Perspective on VAT Exemptions', in R de la Feria (ed), EUCOTAX Series on European Taxation VAT Exemptions Consequences and Design Alternatives, 60–81.

27 R Barents, ‘The Prohibition of Fiscal Discrimination in Article 95 of the EC Treaty’ (1980) CMLR 438, 439, with reference to Case C-7/67 Wörhman [1986] ECR 177, ECLI:EU:C:1968:18. The author notes that a lower taxation of imports from third countries would thus be conceivable but unlikely to occur in practice. The author adds that it would be ‘contrary to the character of the Community as a preferential zone’.

28 Article 110 TFEU (n 14) provides that ‘No Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products. Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products'.

29 The Court clarified in Case C-221/06 Stadtgemeinde Frohnleiten [2007] ECR I-9643, ECLI:EU:C:2007:657 that Art 110 TFEU (n 14) does not require that Member States abolish ‘differences which are objectively justified and which national legislation establishes between internal taxes on domestic products' except where the abolition ‘is the only way of avoiding direct or indirect discrimination against the imported products' (paras 72 and 73).

30 See for example Case C-57/65 Lutticke [1966] ECR 205, ECLI:EU:C:1966:34 in which an internal tax was levied on imported dried milk but not on domestic dried milk; 55/79 Commission v Ireland in which an Irish tax was levied in accordance with the same rules on both imports and domestic supplies, but importers had to pay the tax at the moment of import while domestic suppliers could benefit from several weeks' grace; Case C-105/91 Commission v Greece [1992] ECR I-5871, ECLI:EU:C:1992:441 in which cars incorporating traditional technology manufactured in Greece before 31 August 1990 were subject to reduced rates, whilst imported cars incorporating the same technology did not qualify for those rates unless they had been cleared through customs before a certain date and fulfilled various additional and very restrictive conditions. See also Case 299/86 Drexl [1988] ECR 1213, ECLI:EU:C:1988:342; Case 120/88 Commission v Italy [1991] ECR I-621, ECLI:EU:C:1991:74; Case C-119/89 Commission v Spain [1991] ECR I-641, ECLI:EU:C:1991:75; Case C-159/89 Commission v Greece [1991] ECR I-691, ECLI:EU:C:1991:77.

31 For example in Case 112/84 Humblot [1985] ECR 1367, ECLI:EU:C:1985:185, the Court decided that a French tax imposed on cars exceeding a given power rating that was several times higher than the progressive tax payable on cars of less than the said power rating was infringing the prohibition of indirect tax discrimination when the only cars subject to the special tax were imported from other Member States. In the same sense, Case 132/88 Commission v Greece [1990] ECR I-1567, ECLI:EU:C:1990:165; Case 433/85 Feldain [1987] ECR 3521, ECLI:EU:C:1987:371; Case 76, 86–89 and 149/87 Seguela [1988] ECR 2397, ECLI:EU:C:1988:220; Case C-113/94 Casarin [1995] ECR I-4203, ECLI:EU:C:1995:413. In Case C-421/97 Tarantik [1999] ECR I-3633, ECLI:EU:C:1999:309, the Court decided that there was no discrimination because several imported cars fell in the lower tax category. In Case C-302/00 Commission v France [2002] ECR I-2055, ECLI:EU:C:2002:123, the Court concluded that a different tax regime for dark tobacco cigarettes as compared with light tobacco cigarettes was discriminatory because dark tobacco cigarettes were almost exclusively produced in France and light tobacco cigarettes were mostly imported. In Case C-90/94 Haarh Petroleum [1997] ECR I-4085, ECLI:EU:C1997:368, the Court decided that a lower harbour tax for goods off-loaded in harbours used by boats coming from inland waterways as compared with goods off-loaded in harbours used by boats coming from deep water channel constituted indirect tax discrimination. In the same sense: Cases C-114/95 and 115/95 Texaco [1997] ECR I4263, ECLI:EU:C:1997:371; Case C-242/95 GT Link [1997] ECR I-4449, ECLI:EU:C:1997:376, Case C-90/94 Haarh Petroleum [1997] ECR I-4085, ECLI:EU:C1997:368.

32 See for example Case C-45/75 Rewe Zentrale [1976] ECR 181, ECLI:EU:C:1976:22; Case C-127/75 Bobie Getrankevertrieb [1976] ECR 1079, ECLI:EU:C:1976:95; Case C-213/96 Outokumpu [1998] ECR I-1777, ECLI:EU:C:1998:155.

33 Case C-168/78 Commission v France [1980] ECR 347, ECLI:EU:C:1980:51; Case C-169/78 Commission v Italy [1980] ECR 385, ECLI:EU:C:1980:51; Case C-171/78 Commission v Denmark [1980] ECR 447, ECLI:EU:C:1980:54; Case 216/81 Cogis [1982] ECR 2701, ECLI:EU:C:1982:275; Case 106/84 Commission v Denmark [1986] ECR 833, ECLI:EU:C:1986:99; Case 243/84 Walker [1986] ECR 875, ECLI:EU:C:1986:100; Case 184/85 Commission v Italy [1987] ECR 2013, ECLI:EU:C:1987:207; Joined Cases C-367/93 to 377/93 Roders and Others [1995] ECR I-2229, ECLI:EU:C:1995:261. In earlier decisions, the Court followed a more formal approach, focusing on the question of whether the products are ‘normally to be considered as coming within the same fiscal, customs or statistical classification, as the case may be’ (Case C-27/67 Fink-Frucht [1968] ECR 223, ECLI:EU:C:1986:22; Case C-28/69 Commission v Italy [1970] ECR 187, ECLI:EU:C:1970:26; Rewe Zentrale (n 28) para 12; Case C-168/78 Commission v France [1980] ECR 347, ECLI:EU:C:1980:51). It eventually acknowledged that a customs classification designed to meet the requirements of external trade cannot provide conclusive evidence, in particular when such classification does not exist for one of the products (in Case C-169/78 Commission v Italy [1980] ECR 385, ECLI:EU:C:1980:51, the Court concluded that wine made of grapes is similar to wine made of other fruits, even though they fall in different customs categories. In the same sense: Commission v Denmark (n 29)).

34 Rewe Zentrale (n 28). In the same sense: Commission v France (n 29); Commission v Italy (n 29); Commission v Denmark (n 29); Walker (n 29). See also Case C-402/09 Tatu [2011] ECR I-2711, ECLI:EU:C:2011:219, Joined Cases C-136/10 and C-178/10 Obreja and Darmi [2011] ECR I-57, ECLI:EU:C:2011:230; Case C-336/10 Ijac [2011] ECR I-58, ECLI:EU:C:2011:231; Joined Cases C-29/11 and C-30/11 Sfichi and Ilas [2011] ECR I-59, ECLI:EU:C:2011:233; Case C-438/10 Drutu [2011] ECR I-100, ECLI:EU:C:2011:478; Case C-263/10 Nisipeanu [2011] ECR I-97, ECLI:EU:C:2011:466; the Order in Case C-335/10 Vijulan [2011] ECR I-99, ECLI:EU:C:2011:477 and the Order in Case C-573/10 Micşa [2011] ECR I-101, ECLI:EU:C:2012:145 concerning imported and domestic used cars. In Case C-2/09 Kalinchev [2010] ECR I-4939, ECLI:EU:C:2010:123, the Court decided that imported used cars are similar to cars already registered in the member state of importation, even when these cars were originally imported as new cars.

35 Italy v Commission (n 16). In other cases, European law was interpreted as prescribing intra-EU most favoured nation treatment, ie an obligation to treat the products or persons of one other Member State in the same way as the products or persons of another Member State (S van Thiel, Free Movement of Persons and Income Tax Law: The European Court in Search of Principles (IBFD Doctoral Series 3) 334 and following).

36 Case C-101/00 Tulliasiamies and Siilin [2002] ECR I-7487, ECLI:EU:C:2002:505; Case C-313/05 Brzeziński [2007] ECR I-513, ECLI:EU:C:2007:33; Case C-426/07 Krawczyński [2008] ECR I-6021, ECLI:EU:C:2008:434; Case C-345/93 Fazenda Pública [1995] ECR I-479, ECLI:EU:C:1995:66. Accordingly, para 1 of Art 110 TFEU (n 14) prohibits not only the imposition of additional taxes on imports, but also the application of a higher tax rate on imports, and the use of a basis of taxation (Bobie Getränkevertrieb (n 28); Case C-327/90 Commission v Greece [1992] ECR I-3033, ECLI:EU:C:1992:206; Outokoumpu (n 28); Stadtgemeinde Frohnleiten (no 25); Case C-74/06 Commission v Greece [2007] ECR I-7585, ECLI:EU:C:2007:534; Case C-393/98 Gomes Valente [2001] ECR I-1327, ECLI:EU:C:2001:109), or of a method of calculation that leads to a higher tax burden on the imported product (such as the imposition of a uniform amount in one case and a graduated amount in the other), Case C-54/72 Fonderie Officine Riunite [1973] ECR 193, ECLI:EU:C:1973:19.

37 In the words of the Court, ‘even if only in certain cases' (Rewe Zentrale (n 28); Bobie Getränkevertrieb(n 28); Outokumpu(n 28)).

38 Commission v Denmark (n 29); Commission v France (n 29), with reference to Case C-148/77 Hansen v Hauptzollamt Flensburg [1978] ECR 1787, ECLI:EU:C:1978:173.

39 Case C-28/67 Molkerei Zentrale [1968] ECR 143, ECLI:EU:C:1968:17.

40 For example, in Rewe Zentrale (n 28) para 17 the Court noted that ‘it is inappropriate to take into consideration the possibly different effects of such taxation on the price levels of the two products'.

41 Commission v France (n 29); Commission v Italy (n 29); Commission v Denmark (n 29); Cogis (n 29); Commission v Denmark (n 29); Walker (n 29); Commission v Italy (n 29); Roders and Others (n 29).

42 Article 110 para 2 TFEU (n 14) reads as follows, ‘no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products'. Fink-Frucht(n 29); Commission v France (n 29); Commission v Italy (n 29); Commission v Denmark (n 29); Case 170/78 Commission v UK [1980] ECR 417, ECLI:EU:C:1980:53; Case 278/83 Commission v Italy [1985] ECR 2503, ECLI:EU:C:1985:325; Case 356/85 Commission v Belgium [1987] ECR 3299, ECLI:EU:C:1987:353; Case 323/87 Commission v Italy [1989] ECR 2275, ECLI:EU:C:1989:305; Case C-167/95 Commission v Sweden [1997] ECR I-1195, ECLI:EU:C:1997:105.

43 Commission v France (n 29), Commission v Italy (n 29); Commission v Denmark (n 29).

44 Commission v Denmark (n 29) para 12.

45 Case C-193/85 Co-Frutta [1987] ECR 2085, ECLI:EU:C:1987:210.

46 Fink-Frucht (n 29). In Commission v Belgium (n 38), the Court decided that a higher rate of value-added tax on imported wine of fresh grapes than on domestically produced beer is not incompatible with the second paragraph of Art 95 (now 110) provided, first, that the difference between the respective sale prices of wine and beer of comparable quality is so great that the difference between the rates of tax applicable to the two products is not capable of influencing consumer behaviour and, secondly, that no actual protective effect is apparent from the comparative statistics for trends in wine consumption and beer consumption in the Member State concerned (same decision in Case C-167/05 Commission v Sweden [2008] ECR I-2127, ECLI:EU:C:2008:202). See also Commission v UK (n 38) in which the Court decided that it is not essential to provide statistical data to demonstrate the competitive relationship between two products, and Roders and Others (n 29) in which the Court also took an important difference in prices into account to decide that there was no breach of Art 95 (now 110) para 2. See also 179/78 Commission v UK in which the Court decided that that the UK tax system had the effect of subjecting wine imported from other Member States to an additional tax burden so as to afford protection to domestic beer production; or Co-Frutta (n 41), in which the Court decided that the second paragraph of Art 95 (now 110 TFEU (n 14)) precludes the charging of a consumer tax on bananas, because bananas are not grown in Italy and the tax may therefore protect domestic fruit production.

47 Commission v France (n 29); Commission v Italy (n 29); Commission v Denmark (n 29). In Commission v UK (n 38) (1983 decision), the Court focused on ‘potential competition' and clarified that ‘In order to determine the existence of a competitive relationship within the meaning of the second paragraph of article 95, it was necessary to consider not only the present state of the market but also possible developments regarding the free movement of goods within the community and the further potential for the substitution of products for one another which might be revealed by intensification of trade, so as fully to develop the complementary features of the economies of the member states in accordance with the objectives laid down by article 2 of the Treaty’ (para 7). In the same sense, Cogis (n 29).

48 Fink-Frucht (n 29); Commission v France (n 29); Commission v Italy (n 29); Commission v Denmark (n 29).

49 See Commission v Belgium (n 38) para 15: ‘the essential question is therefore whether or not the tax is of such a kind as to have the effect, on the market in question, of reducing potential consumption of imported products to the advantage of competing domestic products'. The Court clarified that ‘It is impossible to require in each case that the protective effect should be shown statistically’, and that ‘it is sufficient for it to be shown that a given tax mechanism is likely, in view of its inherent characteristics, to bring about the protective effect referred to by the treaty’. Commission v UK (n 38) (1980 decision) para 10.

50 Commission v France (n 29); Commission v Italy (n 29); Commission v Denmark (n 29).

51 Commission v UK (n 38) (1980 decision) para 10.

52 Commission v Belgium (n 38) para 6; Commission v Sweden (n 42) para 40.

53 In Fink Frucht (n 29), the Court held that there can be no infringement of 95 (now 110 TFEU (n 14)) when there are no similar domestic products or other domestic products capable of being protected.

54 In the same sense: Commission v Italy (n 29). Drexl (n 26).

55 Court decisions related to VAT include: Case C-390/96 Lease Plan [1998] ECR I-2553, ECLI:EU:C:1998:206 and Case C-97/09 Schmelz [2010] ECR I-10465, ECLI:EU:C:2010:632. Court decisions related to other indirect taxes include: Case C-17/00 De Coster [2001] ECR I-9445, ECLI:EU:C:2001:651; Case C-134/03 Viacom Outdoor [2005] ECR I-1167, ECLI:EU:C:2005:94; Case C-169/08 Presidente del Consiglio dei Ministri [2009] ECR I-10821, ECLI:EU:C:2009:709; Case C-49/89 Corsica Ferries [1989] ECR 4441, ECLI:EU:C:1989:649; C-191/99 Kvaerner [2001] ECR I-4447, ECLI:EU:C:2001:332; Case C-451/99 Cura Anlagen [2002] ECR I-3193, ECLI:EU:C:2002:195; Case C-8/02 Leichtle [2004] ECR I-2641, ECLI:EU:C:2004:161; Joined Cases C-544/03 and 545/03 Mobistar et Belgacom Mobile [2005] ECR I-7723, ECLI:EU:C:2005:518; Case C-242/05 van de Coevering [2006] ECR I-5843, ECLI:EU:C:2006:430; Case C-42/08 Ilhan [2008] ECR I-83, ECLI:EU:C:2008:305.

56 For example in De Coster (n 51), the Court decided that a tax on satellite dishes constitutes a restriction to the freedom to provide services where it is shown that such a tax is liable to impede the activities of operators in the field of broadcasting or television transmission established in other Member States. Along the same line, the Court decided in Presidente del Consiglio dei Ministri (n 51) that a regional tax on aircraft stopovers imposed only on natural and legal persons whose tax domicile is outside the territory of the region is a restriction to the freedom to provide services even if it also applies to resident suppliers, because it makes the services concerned more costly for non-resident suppliers. In none of these cases of non-discriminatory restriction does the Court explicitly address the question of whether resident and non-resident suppliers are in a comparable situation because the restrictive measures also applies to resident suppliers (the only relevant question here being whether a rule is likely to hinder the free movement of services within the Internal Market).

57 Case C-97/09 Schmelz [2010] ECR I-10465, ECLI:EU:C:2010:632, Opinion of AG Kokott para 97.

58 For a critical commentary of this decision, see M Lamensch, ‘Lenient Constitutional Control of the VAT Exemption for Small-and-Medium Sized Enterprises?—Commentary on the European Court Decision in the Schmelz Case', in S van Thiel (ed), Tax Law in the Light of Judgments: Interaction between European Law and Domestic Courts—2012; Tax Planning: What is (un)acceptable—2013 (Confédération Fiscale Européenne (CFE) Forum Reports on European Taxation—5).

59 And does therefore not raise the traditional questions as under Art 110 TFEU (n 14) whether a given tax rule entails a ‘different treatment’ ‘on the basis of nationality’ of ‘similar or comparable’ situations.

60 In fact, it is probable that the absence of real discussion of the concept of similarity in the Court's discrimination analyses under Art 56 TFUE is due to the fact that the parties have rarely argued ‘dissimilarity’ of services or situations of service providers. In general, the small number of VAT decisions on Art 56 TFEU (n 14) is perhaps also an indication that Member States have been less prone to adopt discriminatory measures towards cross-border services than they have been with respect to goods (which were traditionally more mobile, until the emergence of digital supplies).

61 Already before developing its principle of fiscal neutrality, the Court of Justice had made a clear link between the prohibition of discrimination and the need to subject similar supplies to similar burdens in Case 6/71 Rheinmühlen Düsseldorf [1971] ECR 719, ECLI:EU:C:1971:83.

62 ‘It follows that the determination and the definition of the transactions to which a reduced rate may be applied under those provisions of the Sixth Directive are matters for the Member States concerned. Nonetheless, in exercising that power, the Member States must respect the principle of fiscal neutrality. That principle precludes in particular treating similar goods and supplies of services, which are thus in competition with each other, differently for VAT purposes, so that those goods or supplies must be subjected to a uniform rate (see, to that effect, Case C-481/98 Commission v France [2001] ECR I-3369 paragraph 22)’. Case C-267/99 Urbing [2001] ECR I-7467, ECLI:EU:C:2001:534 paras 35–36.

63 Based on a similar reasoning, the principle of fiscal neutrality has also been relied on to bring unlawful supplies competing with lawful supplies into the scope of the tax. See for example Case C-111/92 Lange [1993] ECR I-4677, ECLI:EU:C:1993:345; Case C-283/95 Fischer [1998] ECR I-3369, ECLI:EU:C:1998:376; Case C-455/98 Salumets [2000] ECR I-4993, ECLI:EU:C:2000:352.

64 Case C-109/02 Commission v Germany [2003] ECR I-12691, ECLI:EU:C:2003:586, paras 19, 20 and 28.

65 Commission v Germany (n 60) para 22.

66 After recalling that fiscal neutrality applies to similar supplies ‘which are thus competing with each others' in Joined Cases C-443/04 and 444/04 Solleveld [2006] ECR I-3617, ECLI:EU:C:2006:257, para 39.

67 Solleveld (n 62) para 51. In the same sense: C-45/01 Dornier [2003] ECR I-12911, ECLI:EU:C:2003:595, para 49.

68 Joined Cases C-259/10 and C-260/10 The Rank [2011] ECR I-10947, ECLI:EU:C:2011:719, para 32.

69 As noted above, this decision concerns supplies of services, but the Court confirmed that it could also apply to goods.

70 The Rank (n 64) paras 43 and 44, with reference to Case C-481/98 Commission v France [2001] ECR I-3369, ECLI:EU:C:2001:237, para 27, and, by analogy, Roders and Others (n 29) para 27, and Commission v France (n 27) para 23.

71 The Rank (n 64) para 20.

72 The Rank (n 64) para 34, with reference to Commission v Germany (n 60) paras 22 and 23, and Joined Cases C-453/02 and C-462/02 Linneweber and Akritidis [2005] ECR I-1131, ECLI:EU:C:2005:92, paras 19 to 21, 24, 25 and 28.

73 The Rank (n 64) para 33.

74 The Rank (n 64) para 35, with reference to Case C-404/99 Commission v France paras 46 and 47, and Case C-363/05 JP Morgan Fleming Claverhouse Investment Trust and The Association of Investment Trust Companies paras 47–51.

75 Commission v France (n 29); Commission v Italy (n 29); Commission v Denmark (n 29); Cogis (n 29); Commission v Denmark (n 29); Walker (n 29); Commission v Italy (n 29); Roders and Others (n 29).

76 C-454/12 and C-455/12 Pro Med Logistik [2014] ECLI:EU:C:2014:111, para 54.

77 And should, accordingly, and for the sake of fiscal neutrality, be subject to similar reduced rates of VAT in accordance with Annex III point (6) of the VAT Directive. Annex III indent (6) of the VAT Directive reads as follows: ‘supply, including on loan by libraries, of books on all physical means of support (including brochures, leaflets and similar printed matter, children's picture, drawing or colouring books, music printed or in manuscript form, maps and hydrographic or similar charts), newspapers and periodicals, other than material wholly or predominantly devoted to advertising’. The application of reduced rates to these items is only optional for Member States. In other words, if Member States could indeed decide that e-books on physical supports are subject to reduced rates in their jurisdiction, they are not obliged to, except if fiscal neutrality commands it (in that sense, see Court decision para 28). In practice, only Hungary, Luxembourg, Poland, Portugal, Romania, Spain and the Netherlands apply a reduced rate to books and e-books stored on a physical media such as a CD-ROM or a USB key.

78 C-219/13 K Oy [2014] ECLI:EU:C:2014:2207, para 31, See also para 25 with reference to The Rank.

79 C-33/11 A Oy [2012] ECLI:EU:C:2012:482, para 32, with reference to C-382/02 Cimber Air para 24, and C-97/06 Navicon para 21.

80 A Oy (n 79) para 33 and reference to C-363/05 JP Morgan Fleming Claverhouse Investment Trust and The Association of Investment Trust Companies para 47 and the case law cited. In C-250/11 Lietuvos [2012] ECLI:EU:C:2012:496 (adopted the same day), the Court, however, decided that fiscal neutrality was not breached in case of different VAT treatment of road and rail transport because the two modes of transport ‘are not generally interchangeable and that the situation of undertakings operating in each of those different transport sectors is accordingly not comparable’ (para 45), without examining the competitive relationship between the two.

81 Commission v France (n 66) paras 25 and 27.

82 In this case, reimbursement depended on whether the patient was buying the medical products with or without a medical prescription. This factual difference does not change the fact that the products are similar and that in both cases, the patient buys them to cure or prevent an illness.

83 In this case, therefore, the Court concluded the absence of similarity (and thus prohibited discrimination) because of large price differences.

84 Making reference to C-94/09 Commission v France, EU:C:2012:253, para 25 and C-454/12 Pro Med Logistik and Pongratz, C-455/12, EU:C:2014:111, para 43.

85 Making reference to C-442/05 Zweckverbandzur Trinkwasserversorgung und Abwasserbeseitigung Torgau-Westelbien, EU:C:2008:184, para 43; C-94/09 Commission v France, EU:C:2010:253, para 26; and C-454/12 Pro Med Logistik and Pongratz, EU:C:2014:111, para 44.

86 As confirmed by the Court in Zimmermann, which may be surprising in view of the fact that it aims at reflecting a Constitutional EU general principle of Law, see n 22.

87 See Recital 5 of the Preamble to the VAT Directive.

88 The Rank (n 64) para 34, with reference to Commission v Germany (n 60) paras 22 and 23, and Linneweber and Akritidis (n 68) paras 19–21, 24, 25 and 28.

89 To be noted that in its Opinion in the K Oy case (n 79), Advocate General Mengozzi held, as regards books on CDs, CD-ROMs or USB keys that if ‘characteristics are decisive from the viewpoint of the average consumer of the Member State concerned, it is justifiable for the national law not to grant to the supply of books on supports other than paper the reduced rate of VAT applicable to printed books. On the other hand, if those characteristics have no influence, or little influence, on the average consumer's decision to buy books on supports other than paper—because what matters for that consumer is mainly the similar content of all books, irrespective of their means of support or characteristics—the selective application of a reduced rate of VAT is not justified’ (Advocate General Opinion, para 62).

90 Advocate General Opinion, para 57.

91 HI Chyi and AM Lee, ‘Theorizing Online News Consumption: A Structural Model Linking Preference, Use, and Paying Intent’ (2012), paper presented at the 13th International Symposium on Online Journalism, Austin, Texas, 20–21 April 2012, for example, conclude from several surveys made in the US that readers have a clear preference for printed rather than online newspapers (4).

92 D Bounie, B Eang, M Sirbu, P Waelbroeck, ‘Superstars and Outsiders in Online Markets: An Empirical Analysis of Electronic Books' (2013) Electronic Commerce Research and Applications 12, 53.

93 The terms and conditions of the licence agreement may actually restrict the right of the customer to share his e-books with other users.

94 See for example the Apple Store terms and conditions which clearly provide that ‘The Products transacted through the Service are licensed, not sold, to You for use only under the terms of this license’ (full text available at https://www.apple.com/legal/internet-services/itunes/appstore/dev/stdeula/); or the Kindle Store Terms of Use, ‘Upon your download of Kindle Content and payment of any applicable fees (including applicable taxes), the Content Provider grants you a non-exclusive right to view, use, and display such Kindle Content an unlimited number of times, solely on the Kindle or a Reading Application or as otherwise permitted as part of the Service, solely on the number of Kindles or Supported Devices specified in the Kindle Store, and solely for your personal, non-commercial use. Kindle Content is licensed, not sold, to you by the Content Provider’ (full text available at: https://www.amazon.com/gp/help/customer/display.html/ref=hp_left_v4_sib/188-4885339-9649828?ie=UTF8&nodeId=201014950), and the Microsoft Retail Licence terms, ‘We do not sell our software or your copy of it—we only license it. Under our license we grant you the right to install and run that one copy on one computer (the licensed computer) for use by one person at a time, but only if you comply with all the terms of this agreement’ (full text available at: http://office.microsoft.com/en-us/products/microsoft-software-license-agreement-FX103576343.aspx). 

95 European Commission (n 12), 15. The position of the European Commission on that question may have changed (see n 12).

96 The OECD Working Party 9 is the one in charge of consumption tax issues.

97 Which would not have to be discussed if the two products were similar, because in that case they would automatically be in competition.

98 In that sense, see HA Kogels, ‘VAT @ e-commerce’ (1999) 8 (2) EC Tax Review 117–122; Bounie, Eang, Sirbu, Waelbroeck (n 84), 52.

99 Bounie, Eang, Sirbu, Waelbroeck (n 84), 57.

100 Y Hu and M Smith, ‘The Impact of Ebook Distribution on Print Sales: Analysis of a Natural Experiment’ (2013) available at SSRN: http://ssrn.com/abstract=1966115 or http://dx.doi.org/10.2139/ssrn.1966115.

101 Court decision, para 30, endorsing the conclusions of the Advocate General (see para 54 of the Opinion).

102 Market definitions are used in competition cases to identify the boundaries of competition between seemingly related products. See Commission Notice 97/C 372/03: ‘The relevant market in terms of product comprises all those products and/or services which are regarded as interchangeable or substitutable by the consumer, by reason of the products' characteristics, their prices and their intended use’.

103 United States v Apple, Inc, Hachette Book Group, Inc., HarperCollins Publishers LLC, Verlagsgruppe Georg Von Holtzbrinck Gmbh, Holtzbrinck Publishers, LLC D/B/A Macmillan, The Penguin Group, a Division of Pearson PLC, Penguin Group (USA), Inc, and Simon & Schuster, Inc.

104 See the Complaint, at 33.

105 See for example Case COMP/M2978 Lagardère/Natexis/VUP or Case COMP/M1377 Bertelsmann/ Wissenschaftsverlag Springer, in which DG Competition stated that the development of new distribution means for publications, in electronic form through CD-ROMs and through online websites, are regarded as a separated medium of distribution by market participants. In Case No COMP/M6789 Bertelsmann/Pearson/Penguin Random House, in which, as part of its market investigation regarding the sale of English books to dealers, the Directorate carried out a consultation exercise with publishers and customers and found that ‘the majority of responding customers consider that the vast majority of consumers would not switch from print books to e-books and vice-versa in case of a 5 to10 per cent increase in the retail price’. Finally, in the merger procedure of UK-based APW, GMG and EMAP, DG Competition did not consider alternatives to publication on print when defining the relevant readers' market. But, in defining the market for advertising space, which it finds constitutes a separate market, it does include the sale of online advertising space.

106 The Global Digital Media Trendbook 2013,7.

107 HI Chyi, ‘Willingness to Pay for Online News: An Empirical Study on the Viability of the Subscription Model’ (2005) 18 (2) Journal of Media Economics 131–142. On the same question, see J Rose, D Field and M Vos, ‘Online News for Sale’ (2009) Boston Consulting ; M Myllylahti, ‘Newspaper Paywalls, The Hype and the Reality’ (2013) Digital Journalism, DOI: 10.1080/21670811.2013.813214, available at http://dx.doi.org/10.1080/21670811.2013.813214.

108 See EC webpage: http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/e-services/article_1610_en.htm#a7.

109 P Farhi, ‘Don't Blame the Journalism’ (2008) 30 American Journalism Review 5. Retrieved from http://www.ajr.org/article.asp?id=4623. Farhi's research focuses on the US newspaper market.

110 Interestingly, and because books and newspapers are goods and e-books and online journals are services under the VAT Directive, the Court would probably have to apply the two provisions concurrently, and the fact that similar discrimination tests are performed under these two provisions is also welcome.

111 As explained in the introduction, we felt that the question is nevertheless worth exploring. First, because we find the reluctance of the Court to assess the legality of the VAT Directive against the principle of fiscal neutrality quite disputable and, secondly, because beyond the possibility of a legal recourse in front of the Court, an answer to that question could also be useful for the EU legislator when amending its VAT rate framework

112 In that case, instead of simply broadening the scope of authorised reduced rates to ‘e-books' and ‘online journals' and run the risk that other forms of cultural, information and knowledge mediums develop that would again not be covered, the EU legislator could perhaps rather decide to authorise the application of a reduced rate of VAT to any form of ‘literary work’ and ‘information’.