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Verbatim report of proceedings
Wednesday, 16 November 2011 - Strasbourg OJ edition

15. Modernisation of VAT legislation in order to boost the digital single market (debate)
Video of the speeches

  President. − The next item is the debate on the question for oral answer to the Commission by Marielle Gallo, Doris Pack, Jürgen Creutzmann, Olle Ludvigsson, António Fernando Correia De Campos, Arlene McCarthy, Phil Prendergast, Ashley Fox, Louis Michel, Jean-Paul Gauzès, Jean-Marie Cavada, Nadja Hirsch, Diana Wallis, Bill Newton Dunn, Tadeusz Zwiefka, Constance Le Gr ip, David Casa, Jean-Pierre Audy, Pablo Arias Echeverría, Philippe Juvin, Piotr Borys, Marie-Thérèse Sanchez-Schmid, José Manuel García-Margallo y Marfil, Angelika Niebler, Axel Voss, Françoise Grossetête, Ivo Belet, Katarína Neveďalová, Cătălin Sorin Ivan, Silvia Costa, Alajos Mészáros, Toine Manders, Damien Abad, Hannu Takkula, Ioannis A. Tsoukalas, Helga Trüpel, Adina-Ioana Vălean, Cornelis de Jong, Raffaele Baldassarre, Cecilia Wikström, Cristian Silviu Buşoi, Klaus-Heiner Lehne and Niki Tzavela on the modernisation of the VAT legislation in order to boost the digital single market (O-000226/2011 – B7-0648/2011).


  Marielle Gallo, author.(FR) Mr President, in the economic crisis we are experiencing, there is a definite need for austerity and balanced budgets. However, stabilising the public finances is only the first step. It is indeed indispensable, but it is a first step that must of necessity be followed by a second step, and that is the competitiveness of the European Union.

In order to think ahead, to guarantee economic growth, to maintain employment, we must act quickly. Achieving the objectives of the Europe 2020 Strategy is absolutely essential, as is fulfilling the goals of the digital agenda. We cannot afford to lay ourselves open to failure, as was the case with the Lisbon Strategy.

The digital economy has enormous growth potential. Information and communications technologies have sparked off a real revolution. In the United States, for example, sales of e-books now outstrip sales of printed books. In contrast, the European market is weak and fragmented, and this situation is partly attributable to indirect taxation.

Why is that? The current legal framework does not recognise digital cultural goods, because they are treated as supplies of services. If I take the example of a book, a printed book is subject to value added tax (VAT) of 5.5%, whereas an e-book is subject to standard-rate VAT, which is never less than 15%. I should add that, for the partially sighted, a category that comprises several millions of European citizens, the e-book is a genuine revelation and a revolution.

This fiscal discrimination is, therefore, prejudicial to the digital single market. I believe that the Americans understood this clearly, well before us, as President Clinton took the initiative in 1998 to impose a moratorium, which indeed he renewed three times, under which individual states were prohibited from imposing a higher sales tax on any electronic goods. The result, which can clearly be seen today, is that the digital market is completely dominated, precisely, by the Americans.

I therefore believe that the European Union must quickly mobilise the means to enable it to achieve these objectives and, specifically, this involves the introduction of a reduced rate of VAT for the whole category of digital cultural goods. In this way, we can obtain a reduction in the cost of the lawful supply of these goods. By cutting costs, we make these goods much more accessible to the public. This would also provide a much greater range of choice for European consumers. It is the way to combat piracy. In broadening the range of lawfully supplied goods and making them more accessible, we should clearly reduce the temptation to indulge in digital piracy. Moreover, countries’ tax revenues can only increase as consumption increases.

The final point I should like to emphasise is that the single digital market must benefit all Member States. In order to achieve this, I ask the Commission to bring forward the amendment to the place of supply rules for VAT, scheduled for 1 January 2015, to ensure that VAT is payable in the country of purchase of the goods, instead of in the country where the vendor is established.

I think that if we manage to implement at least these tax rules quickly, the digital single market is bound to develop. We are again way behind the United States, as I have explained, and I believe that we no longer have a choice. We must act today without fail and proceed with this alignment, so that we can avoid and finally do away with this discrimination against digital goods with a cultural content.


  Androulla Vassiliou, Member of the Commission. − Mr President, the Commission agrees with you that – as an economic principle – online and offline products with the same content should be treated in the same way. Of course you will understand that I personally, as Commissioner responsible for education and culture, am particularly interested in this issue.

However, the application of the standard VAT rate is the general principle set out in EU VAT law, whereas the application of reduced VAT rates remains an option for Member States and is limited to certain categories of goods and services.

As for cultural goods, the current option to apply a reduced rate is limited to the supplies of traditional books printed on paper, as well as to books engraved on physical means of support such as diskettes, CDs, DVDs, etc. On the other hand, supplies of e-books, as well as supplies of online newspapers and online periodicals, qualify as electronically supplied services, to which the reduced rates do not apply.

As far as the place of taxable transactions is concerned, until 2015 the supply of electronic services to final consumers within the EU is taxed in the country of the supplier. From January 2015, those electronic services will be taxed in the country of the customer.

An optional application of reduced rates by the Member States to these products, such as e-books, not only is not permitted under the current rules, but it should also be excluded in the short and medium term as it would lead to distortions in the internal market if only some countries use the option.

With your second question, you suggest advancing the date of 1 January 2015 by which the rules on the place of supply will change.

The adoption of the Directive, as regards the place of supply of services, was the result of long negotiations in Council which started in 2003. The entry-into-force date of 1 January 2015 was an essential part of this unanimous agreement, and Member States have already indicated that they are not prepared to review this two years after its adoption.

As regards your last question, the Commission is of the opinion that a political discussion on the current VAT rates structure will be necessary in the broader framework of the review of the EU VAT system.

This review was launched with the Green Paper on the future of VAT in December last year. Parliament contributed to the debate with the resolution on the future of VAT adopted last month. The Commission intends to present, before the end of this year, a Communication setting out the priorities for future work on VAT. This will be an open discussion and in 2012 we shall decide, according to the results of this Communication, what measures we should take.


  Andreas Schwab, on behalf of the PPE Group.(DE) Mr President, Commissioner, ladies and gentlemen, the digital single market, or what has been called the fifth basic freedom of the European Union, is – as has already been mentioned – of considerable economic importance for undertakings and consumers alike. Even beyond the 20-year existence of the single market, this is an area that must be driven forward over the long term. Therefore, all remaining barriers and market distortions, even those that are tax-related, must continue to be broken down in order to promote cross-border trade and enable a fair distribution of income between the Member States.

The example that we are discussing here today demonstrates two things: firstly, allowing the Member States to vary tax conditions for certain products, in particular to reduce tax, can also create an incentive for undertakings to use this to trade in a host of products in their own Member States. I think both the Commission and the Council know what we are talking about here. Secondly, the matter that we are discussing today also demonstrates that further harmonisation – as Ms Wallis is here, I can also cite the Consumer Rights Directive – is also needed in areas other than value added tax. It will make a number of additional measures necessary if we really want to achieve a genuinely uniform single market.

One of the examples presented here is the differences that have been observed in the way comparable product groups or services are treated with respect to VAT. Whereas Member States have the option, for example, of applying a reduced tax rate to cultural goods and books, according to the VAT Directive, standard rates must be applied to competing online services such as e-books. This unequal treatment cannot be justified objectively, however. The market for e-books has enormous economic potential for the digital single market and it is still an extremely new, but nevertheless rapidly developing segment in which the price plays an important role.

Therefore, Commissioner, we will look very closely not only at any further proposals from Mr Šemeta, but also at the public consultation on VAT that you mentioned. I also believe that, particularly in view of the current problems, it is in the interests of the single market that we bring about further harmonisation in this area. However, this will require political leadership from the Commission.


  Olle Ludvigsson, on behalf of the S&D Group.(SV) Mr President, Europe is currently in dire need of strong and sustainable growth. Without higher growth rates it will be difficult to solve the acute debt crisis and cope with global competition in the slightly longer term. In this situation, we cannot afford to miss a single opportunity to improve the growth potential of the European economy. We must leave no stone unturned in our efforts to get the internal market to operate more effectively.

One area with a particularly large amount of potential is the digital sector. If the existing barriers to digital services on the internal market were removed, the exchange of this type of service in Europe would be likely to increase the market. This would have a direct economic value, promote the development of digital services and also give important international competitive advantages to those European companies operating in this area.

A significant barrier to the digital internal market is posed by the rules contained in the VAT Directive, which state that services of cultural content must not have the same low VAT rate when supplied digitally as when they are supplied in physical form. These rules are out of date and need amending without delay. Books, newspapers and music that are provided in digital form clearly should be given the same tax conditions as the physical equivalents.


  Diana Wallis, on behalf of the ALDE Group. – Mr President, I am really grateful to Ms Gallo for raising this issue and for setting out so carefully and properly the challenge that we face in her introduction. I would also like to thank the Commissioner for her careful but – from our point of view – rather unsatisfactory answer.

I want to keep this dead simple. I have here a pile of books. They are not very pretty or wonderful books, but they are books. I love books and I will have a whole lot of real books on my Christmas list this Christmas.

But why should it be that these books pay less VAT than e-content? I can carry a whole library around on my e-reader. Both of them are cultural content, but there is a huge difference in the VAT to which they are subject.

We talk about an internal market, we talk about a digital revolution. It seems to me that our Member States have something to learn from what has happened in America in these terms. A pile of books or e-content. Let us be modern, let us be equal.


  Rolandas Paksas, on behalf on the EFD Group. – (LT) Mr President, I agree entirely with the ideas of the author, Marielle Gallo, and it seems to me that in this case the Commissioner’s position is a little too cautious. Ladies and gentlemen, the different value added tax (VAT) rates applied to digital and physical goods really are a serious problem today, preventing the potential for growth and the wide range of goods and services that the digital market can provide from being fully exploited. Furthermore, this is leading to discriminatory treatment where the benefits of the single market only apply to physical goods. Consequently, I believe that the Commission must take immediate action so that the reduced rate of VAT is applied to cultural goods and services provided in a physical format or over the Internet, and VAT rules are simplified and harmonised. Particular attention should be paid to e-books, which are currently subject to the general VAT rate, while physical books are subject to a lower rate (15% and 5% respectively). I believe that the implementation of these measures will create a more favourable environment for the development of digital resources in the cultural sphere and the effective functioning of the digital single market. This market is very important and essential for modernising business and providing better services to citizens in the Community, and is making a major contribution to the further development of e-commerce and electronic services. Remaining barriers to the single digital market must therefore be eliminated as quickly as possible.


  Saïd El Khadraoui (S&D).(NL) Mr President, Commissioner, ladies and gentlemen, the resolution before us is important and should be given the consideration due to it. VAT is indeed an important policy instrument and can play a major role in the choices that consumers make in relation to whether or not to buy goods.

In the books sector, specifically, this can be seen in striking fashion. The numbers speak for themselves. The author has already hinted at the enormous potential of ebooks by making reference to what has happened in the United States, where there is an enormous market for these products. If we really do want to give the digital sector a chance, we in Europe need to follow the same path. I will give a couple of examples. In Italy, supposedly only around seven thousand books are available digitally. The VAT rate for printed books is 4%, whereas for ebooks it is 20%. In Germany, the number of titles is apparently larger, at around 30-40 000. There, too, there is an enormous difference in VAT rates: 7% for printed books but 19% for ebooks.

We therefore advocate the application of the lower tariff to this category of books. I believe that, alongside the internal market argument, which we have already heard about quite a number of times, there is also a cultural argument. More and more young people actually come into contact with the world of books, of literature, through the digital route. They have grown up with it. I think it is important that we take account of the fact that young people, who have less money in their pockets, also continue to have access to literature and to books in general.


  Róża Gräfin von Thun und Hohenstein (PPE). - Mr President, I can only agree with my colleagues from all political parties that have spoken before me, and I also agree with my friend Diana Wallis that many of our friends and many European consumers are going to get a nasty shock when they go shopping for Christmas. Electronic books, which are growing in popularity thanks to readers such as – maybe I should not enumerate them – Kindle, iPads, etc. are subject to a much higher VAT rate than their paper cousins (which we love, I agree with you, Diana).

The so-called VAT gap – the difference between the reduced VAT rate applied to books in 25 of 27 Member States and the standard VAT rate to which e-books are subject – is stifling the development of the digital single market. It is going in the opposite direction to what we are striving for.

The problem is very simple. Our EU law is out of date. There is no reason why a difference in VAT rate should be applied to the same product simply due to the means of its delivery. It has been said many times that in Europe e-commerce and other digital services lag behind those in many other parts of the world. This blocks the great potential for their growth. Cultural goods should be made as widely available as possible, and we must support the digitalisation of books. I fully agree with my colleagues.

E-books are a new way of reading, maybe especially for the young generation, and we must care about them and give them a chance. This VAT rate reduces the incentive to publishers to further develop the area and for consumers to buy e-books. This will cause us to read less – and we care about our European culture.

So I am sure that, if the European Commission puts forward a reasonable proposal to have the same VAT rate for paper products and digitalised products, we will all support you with great joy.


  Jaroslav Paška (EFD). – (SK) Mr President, although I do not consider cuts in VAT on some goods and services as a proper systemic solution, I respect the fact that the majority of governments are using tax cuts to stimulate certain activities or products. If a country applies cuts in VAT on books, it should also implement the same reduction for e-books.

Unlike my colleague Mrs Gallo, I see the main point of reducing prices less in terms of their cultural as in terms of their educational impact. When we look at the multitude of textbooks, exercise books and set texts of recommended reading which our children have to go through during their education, I firmly believe that electronic versions of school books and workbooks downloaded in the standard manner onto high-quality readers which are now very affordable and of good quality can greatly help schoolchildren and students in their academic work. This would be a good reason to introduce this rate cut.


  Androulla Vassiliou, Member of the Commission. Mr President, let me say that I started by saying that I do agree with all of you about this irregularity, but we cannot get away from the facts. These discussions with Member States started in 2003 and were completed in 2008 with the adoption of certain decisions. At that time – even in 2008 – there was probably not a correct evaluation of the value of online books, periodicals etc. Technology advances so rapidly and we can now see that this evaluation was lacking.

What we need is a political discussion on the current VAT rates and structure. This is necessary in the broader framework of the review of the EU VAT system, and the Commission intends to initiate this discussion with the Communication that we shall adopt in December. As I said, this Communication will cover all aspects of VAT, including the issues that we have been discussing, and I hope that this will lead to some decisions to be taken for action next year.


  President. − I have received four motions for resolutions(1) submitted in accordance with Rule 115(5) of the Rules of Procedure.

The debate is closed.

The vote will take place on Thursday, 17 November 2011.

(The sitting suspended at 20.30 will be resumed at 21.00.)

Written statements (Rule 149)


  Elena Băsescu (PPE), in writing. – (RO) A viable digital single market could improve competitiveness and stimulate economic growth in the EU. This is vital for the development of small and medium-sized enterprises in Europe. Confidence in online transactions needs to be strengthened.

At the moment, only 54% of Internet users in Europe buy or sell goods in the virtual marketplace. At the same time, e-commerce has a role to play in supporting cross-border trade. It is important to remove all the barriers preventing the use of e-commerce. Fiscal obstacles in particular must be removed.

Discrimination must be avoided between the provision of online services and the provision of goods. For example, the same VAT rate must be applied to both printed books and e-books.

My country is 10th in the world based on the ratio of connection quality to Internet access. A series of projects targeting coverage in broadband white areas is due to be launched, which will be allocated EUR 84 million in European funding.




(1) See Minutes.

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