Most EU Member States apply a reduced rate of VAT on the sale of physical books. In January 2012 France and Luxembourg went one step further and decided to lower the VAT rate on ebooks to 5.5% and 3% respectively, matching the VAT rates levied on paper books.
The reason for applying the reduced VAT rate was based on the argument that a broad interpretation should be given to the notion of books, so that no distinction between a physical book and an e-book should be made.
Believing that a reduced rate of VAT was an infringement of the VAT Directive the European Commission asked the Court of the European Union to determine whether applying this VAT reduced rate was in breach of the EU Directive.
The European Court of Justice has decided that e-books downloaded from the internet may not be subject to a reduced rate of VAT like their physical equivalents and must be charged with the standard rate of VAT.
The Court of Justice of the European Union having reviewed the facts determined that e-books downloaded from the internet are considered to be an electronically supplied service. Electronically supplies services are not eligible for a reduced rate of VAT and so EU Member States must charge the standard rate of VAT applicable in each of their respective jurisdictions.
The Minister of Finance announced during his budget speech in November 2014 that VAT on ebooks sold in Malta would be reduced from the current 18% to 5%. However, following the ruling by the CJEU this will not be implemented in Malta.