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.