French Gov't Rejects Plan To Tax DRM eBooks More Than Non-DRM eBooks

(Mis)Uses of Technology

from the good-idea,-severely-flawed-targeting-and-execution dept

For a moment, it looked as though France might utilize its tax system to make a point about how much DRM devalues electronic goods. A few months ago, an initiative surfaced seeking to amend tax laws in order to hit DRM-laced ebooks with a higher VAT. (Or, more accurately, lower the VAT on non-DRMed ebooks.)

A French deputy (Isabelle Attard) thinks that proprietary and DRM protected eBooks should not be legally considered books and should not benefit from the fiscal advantages enjoyed by books as cultural artifacts.

This is a good point, but this deputy’s suggestion wasn’t based on the ongoing removal of “first sale” rights by the addition of DRM. Rather, her amendment looked to target the largest purveyors of ebooks.

Arguing that the real problem was not a question of pricing, but rather the vertical integration of platforms like those of Amazon, Apple and Google, Attard proposed to address the problem by offering a fiscal advantage in the form of reduced VAT to sellers offering open books that consumers can read on any platform.

Although the targeting was off (and France’s relationship with Amazon [in particular] can safely be described as “antagonistic“), the idea of punishing DRM-laden merchandise by hitting it with a higher tax rate appealed to many people, many of whom perhaps didn’t share the same antipathy towards Apple, Amazon and Google.

Not that France wasn’t already giving ebooks a cut rate on taxes. It’s that this amendment would have excluded ebooks with DRM from that reduced rate, as Nate Hoffelder at The Digital Reader explains.

Under France’s [proposed] tax laws, DRMed ebooks will be taxed at a higher rate (currently 19.6%), while DRM-free ebooks will be taxed at the lower 5.5% rate.

[E]books are already sold in France with a 5.5% VAT, or value added tax, bundled into the list price. Technically that is illegal under current EU regulation; ebooks are defined as a service and thus should have a higher VAT applied. But no penalty has been applied (so far) so at this point it is really a matter of opinion.

Attard’s rationale for the rate change tracks with the proper application of the VAT by differentiating between DRM-laced ebooks (“services”) and non-DRM ebooks (“goods”) based on what DRM does to a product.

“Yes, everything that goes against interoperability, or imposes reading constraints would be subject to a VAT of 19.6%, in the capacity of services, and not sale of a book, therefore of a product.”

Unfortunately for anyone hoping France would open a discussion on the DRM issue, the amendment was shot down. Parsing this out from an iffy translation, the reasoning appears to be that while the French government feels it should make an effort to diffuse the power of “vertical markets” (Amazon, Apple, etc.), screwing with the VAT rate isn’t the right approach. Furthermore, lowering the rate for non-DRM ebooks would likely subject the French government to further “condemnation” from the European Commission for “distorting” market activity.

In short: good idea, wrong tool.

But there’s another factor in play as well. While Apple and Amazon sell many ebooks with DRM, they do so at the behest of publishers — large publishers who would probably be none too thrilled to see any shrinkage in their market share thanks to a higher VAT rate, as a commenter at The Digital Reader pointed out.

[Y]ou can bet the major publishers, who license DRMed e-books for the most part and were caught unawares the first time, will not let it pass so easily this time round.

So, an amendment that targeted Amazon (the publishers’ worst enemy, according to entities like the Authors’ Guild) should have been the publishers’ best friend, except for the fact that it targeted DRM, another of the publishers’ best friends. (The enemy of my friend is my enemy, even if the enemy of my enemy is my friend?)

If the publishers did help get this amendment kicked to the curb, they’re probably fine with it slightly benefitting Amazon as well. And as for Amazon, France is still hard at work pushing through legislation specifically targeting the online giant.

French lawmakers on Thursday took aim at Amazon to protect local bookshops by voting through a law that bars online booksellers from offering free delivery to customers on top of a maximum 5 percent discount on books.

Its rather telling that these actions have very little to do with protecting consumers and everything to do with protecting the status quo. The latest anti-Amazon law springs from a 1981 law passed to protect small bookstores from the encroachment of supermarket chains. Thirty years down the road, the same tactics are being deployed, which would indicate the past efforts haven’t done much other than assure France’s booksellers that they’ll never have to make an effort to compete in the market, and that any detrimental effects of these laws will continue to be borne by French citizens.

Filed Under: drm, ebooks, france, taxes, vat