Why Italy is charging higher VAT on ebooks without an ISBN

In their most recent email reminder regarding changes in VAT in the EU, Amazon added a footnote regarding Italy: that also of January 1st, Italy has implemented new legislation that charges a higher rate of VAT on ebooks that do not have an ISBN. eBooks that do not contain an ISBN are charged 22% VAT, while ebooks with an ISBN are charged a rate of only 4%. Before the indie forums light up with declarations that this is a war on ebooks and/or Amazon or Kobo (where ebooks can be sold without an ISBN), let me put this in some context.

In most of the EU, print books are zero-rated or enjoy a lower rate of VAT than other consumer goods.

When ebooks first came on the market they were categorized by the EU as digital goods and rated the same as other digital goods such as software. Many consumers complained, arguing that an ebook is still a book and should be rated the same as print books. Retailers also complained, since the high VAT rate on ebooks discourages sales. Two countries, Luxembourg and France, broke ranks and categorized ebooks the same as print books, lowering the rate of VAT to 3% and 5.5% respectively. This gave retailers in these two countries an advantage since EU consumers were allowed to cross-border shop for ebooks and pay the rate of tax of the seller country. This is why the likes of Amazon, Apple, Google, Nook, and Kobo quickly registered themselves in Luxembourg: it gave them a huge advantage over national retailers in the other EU countries. More complaints followed.

When the EU was considering options to deal with the complaints, two possible legislative changes were at the forefront: rate ebooks the same as print books, or rate ebooks based on the consumer’s location instead of the seller’s.

It was the latter option that won out and which led to the January 1st move to the destination principle. The decision to go the latter route is blamed on pressure from the UK and Germany, who did not want to lower their ebook VAT revenues. Italy, however, vowed to push for equality between ebooks and print books when it held the presidency of the EU last year. Italy was not successful in its endeavour, and has therefore decided to join France and Luxembourg in defying the EU. Malta, too, has done the same.

Meanwhile, Finland argued in court for the lowering of ebook VAT, but lost. The European Court of Justice is suing both France and Luxembourg for lowering their rates; the judgment is expected this summer. Italy and Malta now face similar lawsuits. The French publishers’ association, Syndicat National de l’Edition (SNE), has allegedly warned its members that France may raise the VAT on ebooks back to 20% until the ruling is heard so as to avoid millions of euros in fines should the ruling not be in France’s favour.

So, back to ISBNs. An ISBN clearly identifies an ebook as a book, no different from a print book. No ISBN leaves the door open to classify the good as a digital good and not a book.

Since ebooks retailers such as Amazon sell a multitude of items in addition to ebooks, only an ISBN “proves” the good sold is an ebook. This explains why Italy, who are already facing prosecution for lowering the rate of VAT on ebooks, will only do so if the ebook bears an ISBN.

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6 thoughts on “Why Italy is charging higher VAT on ebooks without an ISBN

  1. Europe as a union is going to tear itself apart with all of this bureaucratic rubbish. The ebook is a book, no matter what some idiot in Brussels says. The UK will end up leaving the EU if this goes on.

    1. But it is the UK that is against rating ebooks the same as print books. When the UK joined the EU, the UK negotiated an exemption for print books because they were already zero-rated in the UK; elsewhere in the EU, print books are subject to tax, just a lower amount (usually around 5%). The UK doesn’t want ebooks to be granted the same general exemption as print books because then there will be pressure to charge VAT on print books in the UK.

  2. Just two week ago (as of January 2016) they fixed plans to change the VAT for eBooks in Germany to 7%, which matches the VAT for printed books!

    1. Italy did this earlier, too, though only for ebooks with an ISBN. Their actions are expected to be challenged by the Commission. It’s been an interesting conflict.

  3. Hi, thank you for your support with your post, a question… in the pag 19 of this official european pdf you can see that e-books in Italy ha 4% VAT, can you help me to understand? In this doc appear that Italy is the only one country with super reduced VAT on ebook! And this is the official website of European commission!

    Thank you!

    Roberto

    1. Italy was not the only country to try to reduce VAT on ebooks: both France and Luxembourg did, which is what started the fight in the EU. Italy has now done so, and as the article says, this is being challenged.

      The low VAT rate only applies to residents of Italy, since VAT is now charged according to the location of the buyer, not the seller. The lower rate also only applies to ebooks with an ISBN, making them on par with print books, or at least according to Italy.

      From the perspective of the publisher, assigning an ISBN to your Kindle and Kobo books means higher profits, since the price you set is inclusive of VAT, which is deducted before you are paid your royalty.

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