LUXEMBOURG

In an unprecedented move, the Culture Ministers of France, Germany, Italy and Poland have jointly called on the European Commission to modify the European Union's law to ensure that ebooks and paper books carry the same value-added tax (VAT) rate.

The latest initiative follows a recent ruling by the Court of Justice of the European Union (CJEU) which states that ebooks are not equal to paper books, and as such the same VAT rate should not apply.

Last week the French publishers association (Syndicat National de l'Edition, SNE) launched a campaign directed at the European Commission that goes to the heart of the current taxation policy around e-books.

The #thatisnotabook/#thatisabook initiative asks social media to rise up against the legislators pointing out the full absurdity of charging the full rate of VAT on e-books, but the lowered rate on print books. In France that is a difference between paying 5.5% and 20%; in Luxemboug it is a difference between 3% and 17%. In the UK the gap is between 0% and 20%.

The latest EU ruling which excludes ebooks from reduced VAT rates follows a long battle between the European Commission and two EU member states: France and Luxembourg. As it stands, paper books continue to qualify for reduced tax rates while their electronic counterparts are now subject to full VAT. This price increase for ebooks isn't just a blow to ebook publishers but a blow to the publishing industry as a whole.

Not all books are equal, said the European Union this week, ruling that ebooks sold in Europe constitute an "electronically supplied service" and so are subject to a higher rate of value-added tax (VAT) than physical books. This means that buying ebooks is likely to become more expensive in some countries, as booksellers raise their prices to pass the cost of increased VAT rates onto customers.

This change will primarily affect France and Luxembourg - the two countries that prompted the ruling after petitioning the EU's Court of Justice

France and Luxembourg lost their battle to apply reduced VAT rates to ebooks on Thursday when a top European court agreed with EU regulators that only paper books qualified for lower taxes. EU rules allow member states to set lower rates of value-added tax on printed books but the European Commission decided two years ago that the 5.5 percent and 3 percent rates imposed by France and Luxembourg respectively, were illegal. 

The European Commission is set to begin a formal probe into allegations that Luxembourg allowed Amazon.com Inc to benefit illegally from state subsidies for its European operations for almost 10 years, the Financial Times reported on Monday.

The investigation relates to favorable terms given to Amazon under a 2003 tax ruling, which cap its tax exposure to the Grand Duchy and limit the overall cost to less than 1 percent of the company's European income, the FT reported, citing people familiar with the case.

The commission contends that Luxembourg permitted Amazon to misallocate gains