As per an EU Regulation, the standard sales tax rate of 19% is to be applied to photo books in future. In Germany a law governing the tax code, which is based on the EU’s Customs Code, has been in force since December 2014. This is a very serious matter – all photo book producers are threatened with a major drop in sales revenues.
The planned increase was due to take effect back in December 2015. Anyhow an updated missive on the subject of the EU Regulation from the Federal Finance Ministry indirectly provides a timeframe or grace period that enables photo book producers to start charging the standard rate of sales tax by the end of December 2016. Until then the German tax authorities will pretty much “turn a blind eye”; although print providers are already supposed to implement this rule for all new orders, action will only be taken against them for non-compliance after January 1, 2017! Mark you, a standard sales tax rate of 20% has applied to photo books in Austria since April 2016, since our neighbor is also guided in taxation law terms by the EU’s new Customs Code.
What was once intended as a rebate, which could be applied to basic needs, has been extended to certain product types, which you would not necessarily consider as covering basic needs. However many daily-use print products are included. Newspapers, books and bound periodicals are thus classed as reduced-sales-tax-rate products. Maybe you can regard this as a privilege, that “only” the reduced rate of 7% has to date applied to photo books. So why shouldn’t that continue? Oh well, to understand that you need to devote time to understanding the Finance Ministry’s reasoning.
I am now quoting from the Federal Finance Ministry’s missive on the subject of “Sales Tax on Photo Books”. “According to the Commission’s Implementing Regulation (EU) 2015/2254 dated 2 December 2015 on the classification of certain goods in the Combined Nomenclature, a hard-covered bound article (so-called “photo book”) made of paper measuring around 21 cm × 31 cm, with full-color printed personalized photographs and a short text referring to the activities, events, persons etc shown in the respective photographs is to be classified under Code 4911 91 00. Classifying such items as books under Code 4901 is not permitted, since the product is not intended to be read.”
So photo books will no longer be subject to the same tax burden as most foods and objets d’art, but to the so-called general sales tax rate, much to the chagrin of the steadily growing photo book market. The photo book therefore should not be regarded as a book in the actual sense of the word, although its content is subject to the reduced tax rate like all other intellectual property. That’s because photo books are not books for sale but rather items featuring pictures and personal statements intended for personal use. On the other hand children’s books, even coloring books, which don’t exactly contain very much text, continue to be exempted from the standard rate. Calendars, for example, are also subject to the standard rate, and they too usually feature plenty of pictures and little text, which of course tallies with the argumentation in the Implementing Regulation. There may also be “loopholes” in the Regulation. So a photo book that features plenty of text could in theory cease to be covered by the Regulation. It will be interesting to see what creative solutions photo book producers come up with to get round this problem.
Market leader, CEWE, alone accounted for almost 70% of all photo books sold in Germany in 2015 ( 6 million copies out of a total of 8.8 million personalized print products). (Source: statista.com)
It’s well known that the majority of photo books are online print-finished. So, in sales terms, that is a major asset well worth fighting for. CEWE also formulated its concerns as such when it published its corporate results for 2015, which in relation to the increase in sales tax read as follows. “In the interests of all customers we shall be advocating a rectification.” Of course CEWE’s own interests in this regard are not inconsiderable. Given that the sales figures in this segment make interesting reading, one can assume that the additional tax revenue would be most welcome to the tax authorities. Let’s assume that an average photo book costs at least €25, not including shipping, in which case the additional, new tax burden or loss of sales would be more than 17 million Euros per annum at 8.8 million copies sold! That is assuming that market volumes remain the same; if they increase that figure will increase accordingly.
“The impact that the sales tax increase will have on photo books remains to be seen. The increase will need to be factored into amended pricing no later than starting in January 2017.” – Bernd Zipper
So this is a bitter pill for the online print market to swallow, because producers and providers will not derive any benefits from the extra sales tax levied, given they have to pay it all to the tax authorities. If nothing is changed in the Regulation, then consumers will be faced with higher prices and consequently print providers will find it tougher to continue charging fair prices for their photo books. That’s because the latter can’t afford to substantially exceed their “old” prices yet at the same time deliver products at least at the same margins as previously.
Will consumers then refrain from ordering personal photo books in future? Well hardly, as the market potential for photo books does not yet seem to have been exploited. The memories and the delights of personal photos will certainly not be clouded by a price supplement of a few Euros. And when the new rate is payable, it’s up to the print providers to continue providing attractive pricing at satisfactory quality.
My Take: The thing to do now is keep calm and print on. At least the reduced rate on photo books will be applied to the vacation trade and a portion of this year’s Christmas trade. And then there is the issue of prices up, revenues down. Neither is good for business.