The European Commission has started “infringement procedures” against France and Luxembourg for “unilaterally” lowering VAT taxes on ebooks after January 1, 2012 and thereby breaking European Union law.

As the Bookseller reports, the tax cuts allowed ebook retailers in the two countries to sell low-priced ebooks to customers throughout the European Union. The cuts benefited, in particular, Amazon.co.uk, which sells ebooks from a Luxembourg shell company. As an EC press release notes, the “situation is creating serious distortions of competition that are damaging to economic operators in the other 25 member states.” The Bookseller further reports that a successful infringement procedure:

… could impact e-booksellers such as Amazon.co.uk, which sells Kindle editions out of Luxembourg, enabling it to apply the Luxembourg low rate of 3%—compared to the UK VAT on e-books of 20%.

…The rates are 7% for France and 3% for Luxembourg. The two countries have one month to explain their positions, and could then be asked to change their laws, or face further “infringement procedures”. France has previously said its government would pay any fine levied on it by the EC, though it has since had a change of administration.

The EC itself plans on debating serious changes to the VAT laws relating to ebooks—which currently legislate that “e-books are regarded as a service supplied electronically [and]…. cannot therefore be taxed at the reduced rate. The hope is that by 2015 VAT “will be paid based on where the purchaser is, not where the company that sells those e-books is based.”