Here's why Amazon located its European operations in Luxembourg

Publishing Perspectives has a follow-up on the European Commission's launch of an "infringement procedure" against France and Luxembourg for offering lower VAT rates on eBooks than print. (Luxembourg's rates are actually the same for print and eBooks.) There are two issues with the European taxation system:

1. VAT rates are all over the place, from a high of 25% in Denmark to a low of 3% in Luxembourg.
2. eBook rates are generally much higher than those for print, for no good reason; for example, in Italy, the VAT on eBooks is 21%, but on print books it's only 4%.

The most logical approach would be to have an EU-wide VAT on books that covers both print and eBooks. Failing that, the next best approach would be for each country to assign the same VAT rate to both print and eBooks, as both Denmark and Luxembourg have done.

Here's a chart that illustrates the problem:

Source: Publishing Perspectives

European Commission investigates lowered eBook VAT rates in Luxembourg and France

PaidContent reports that the European Commission has launched an investigation of France and Luxembourg, both of which have lowered their VAT on eBooks to the same as print books. Without naming names, the European Commission is focusing on Amazon, which has based its European headquarters in Luxembourg (where the eBook VAT is 3%) and sells its eBooks from there, thus giving it a big advantage over eBook resellers in the other European Union countries. According to the article, the European Commission is working at cross purposes with its digital agenda commissioner, who's trying to establish a single Europe-wide digital content market with uniformly low prices.

Part of the issue is that the EU allowed its members to lower their book VAT in 2006, and didn't specify any difference between print and eBooks. (eBooks weren't a significant business in 2006.) The European Commission plans to propose making digital and eBook rates equivalent next year, so the investigation may be little more than saber-rattling to mollify booksellers in other countries.

Call for lower, uniform eBook VAT in Europe

The Bookseller reports that the Federation of European Publishers, supported by European Commission vice-president Neelie Kroes, is calling for a uniform, and lowered, Value Added Tax for eBooks throughout the European Union. Currently, there are big differences in the VAT from country to country; for example, in Luxembourg, where Amazon has its European headquarters, the VAT on eBooks is 3%, but in the U.K, the VAT is 20%. However, as the Federation points out, the decision on changing individual VAT rates is up to the finance ministers in each country.

The Federation is also calling for consumers to be able to move eBooks from device to device without constraint, although it didn't propose any rules for doing so.