Remember how Amazon has based its European operations in Luxembourg due to that country’s lower value-added tax rate on e-books? And France has reduced its own rate? Today the European Commission served notice that it was launching an investigation into whether these countries had broken European Union law by reducing those rates.

The first step involves sending the governments of those countries a letter asking them to explain themselves, and if they don’t provide a satisfactory explanation within one month the European Commission could ask them to change their laws, or launch "infringement procedures”.

As Philip Jones points out on FutureBook, the EU government had already planned to make adjustments to the VAT system that would allow e-books to be charged the same lower rates as print books, but won’t even start discussion on it until 2013, and only changes VAT to apply based on buyer’s rather than seller’s location starting in 2015.

It remains to be seen what the fallout will be from this. There’s been a lot of noise already about how the VAT for e-books is too high, and it’s taking too long to change it. What happens if France and Luxembourg decide to ignore the EU’s directive? France had said it would pay any necessary fines, though its administration has changed since then.


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