The two countries have applied a reduced rate of VAT to e-books since January this year
The European Commission (EC) is asking France and Luxembourg to amend their VAT rates on electronic books (e-books), giving both countries 30 days to increase VAT.
Since January 2012, the two countries have applied a reduced rate of VAT to e-books, which is not in accordance with the current rules under the VAT Directive.
As per the directive, e-books constitute electronically supplied services, and application of a reduced rate to this type of services is excluded.
The EC said that this situation is creating a serious imbalance in competition to the disadvantage of operators in the 25 other member states of the union.
The commission added that it has received complaints from a number of ministers highlighting the adverse impact felt on book sales in their domestic markets.
The EC’s latest move could see online retailer Amazon being deprived of its huge tax advantage on the sales of electronic books.
The online retailer is registered as a Luxembourg company and pays that country’s VAT charge of 3% when it sells an ebook to the UK reader, instead of the 20% it would have to charge if it were UK-based.
Earlier this month, Amazon had planned to make extra profit on ebooks sold in the UK by forcing the publishers to cover the cost of a 20% VAT charge on the sales.