The Italian ISBN fraud

The title of the post is probably considered clickbait, but I think there is a fraud going on in Italy related to ISBN, and since I noted on my Facebook page that I have more information on this than the average person, even those who are usually quite well informed, I thought it’s worth putting it down on paper.

It all started with an email I got from Amazon, in particular from the Kindle Direct Publishing service, which is how I publish Autotools Mythbuster as a Kindle book. At first I thought it was about the new VAT regulation for online services across Europe that are being announced by everybody and that will soon make most website give you ex-VAT prices and let you figure out how much you’re actually paying. And indeed it was, until you get to this post-script:

Lastly, as of January 1, 2015, Italy has put in place a new law. Applicable VAT for eBooks sold in Italy will depend on whether the book has an ISBN. All eBooks with an ISBN will have a 4% VAT rate and eBooks without an ISBN will have a 22% VAT rate. This is the rate that is added to your price on January 1st and is the rate deducted when an Italian customer purchases your book. If you obtain an ISBN after January 1st, the 4% VAT rate will then apply for future sales but we will not adjust your list price automatically.

Since I’ve always felt strongly that discriminating books on whether they are paper or bits is a bad idea, the reduced VAT rate for books was actually good news, but tying it to the ISBN? Not so much. And here’s why.

First of all, let’s bust the myth of the ISBN being a requirement to publish a book. It’s not, at least not universally. In particular, it’s not a requirement in either Italy, Republic of Ireland or the United States of America. It is also not clear for many that in many countries, including at least Italy and Republic of Ireland, it’s privately held companies that manage the ISBN distribution. In other countries there’s a government agency to do that, and it may well be that it’s more regulated there.

In the case of the UK agency (that also handles Republic of Ireland and is thus relevant to me), they make also explicit that there are plenty of situations in which you should not apply an ISBN, for instance for booklets that are not sold to the public (private events, museums, etc.). It might sound odd, but it makes perfect sense the moment when you realize what ISBN was designed to help with: distribution. The idea behind it is that any single edition of a book would have an unique code, so when your bookstore orders from the distributor, and the distributor from the publisher, you have the same ID over the place. A secondary benefit for citing references and bibliographies is often cited, but it is by far not the reason why ISBN was introduced.

So why would you tie the VAT rate on the presence of an ISBN? I can’t think of any particular good reason off the top of my head. It makes things quite more complex for online ebook stores, especially those that have not been limited to stocking books with an ISBN to begin with (such as Amazon, Kobo, …). But even more so it makes it almost impossible for authors to figure out how to charge the buyers, if they are both in Europe. All is still easy of course if you’re not trying to sell to Europe, or from Europe — wonder why we don’t have more European startups, eh?

The bothersome part is that there is no such rule about VAT for physical books! Indeed many people in Italy are acquainted with schemes in which you join a “club” that would send you a book every month (unless you opt-out month by month, and if you don’t you have to pay the price for it), and would sell books at a price much lower than the bookstore.

I’m sure they still exist although I’m not sure if Amazon makes them any interesting now, it was how I got into Lord of the Rings, as I ended up paying some €1.25 for it rather than the price of €30 for the same (hardcover) edition.

All those books were printed especially for the “club” and would thus not have an ISBN attached to them at all. One of the reason was probably to make it more difficult to sell them back second hand. But they have always been charged at 4% VAT anyway!

But the problems run further and that’s hard to see for most consumers because they don’t realize just how difficult the ISBN system is to navigate. Especially for “live” books like Autotools Mythbuster, every single revision needs its own unique ISBN — and since I usually do three to four updates to the book every year, that would be at least four different ISBNs per year. Add to that the fact that agencies decided that “ebook” is not a format, ePub, Mobi and PDF are, and you end up requiring multiple ISBNs per revision to cover for these formats.

Assume only two formats are needed for Autotools Mythbuster, which is only available om Amazon and Kobo. Assume three revisions an year (I would like to do more, I plan on spending more of 2015 writing documentation as I’m doing less hands-on work in Open Source lately). Now you need six ISBNs per year. If I was living in Canada, the problem is solved to begin with – ISBNs assignments in Canada are free – but I live in Ireland, and Nielsen is a for-profit company (I’ll leave Italy aside for a moment, will go back to it later). If I were to buy a block of 10 codes (the minimum amount), I would have to pay £120 plus VAT and that would last me for almost two years — but that requires me making some €300-400 in royalties over those two years to break even on the up-front cost — there are taxes to be payed over the royalties, you know.

This means well over two hundreds copies of the book to be sold — I would love to, but I’m sure there aren’t that many people interested in what I write. Not the two hundreds, but two hundreds every year — every update would have a hidden cost due to the ISBN needing to be updated, and if you provide the update for free (as I want to do), then you need to sell more copies incrementally.

Now I said above I’ll leave Italy aside — here is why: up until now, the Italian agency for ISBN assignment only allowed publishers to buy blocks of ISBN codes — independent authors had no choice and could not get an ISBN at all. It probably had something to do with the fact that the agency is owned by the Italian publishers association (Associazione Italiana Editori). Admittedly the price is quite more affordable if you are a publisher as it is €30 to join and €50 every 10 codes.

But of course with the new law coming into effect it would have been too much of a discrimination against independent authors to not allow them to get ISBNs at all. So the agency decided that starting this January (or rather, starting from next week, as they are on vacation until the 7th) they will hand out individual ISBNs for “authorpublishing” — sic, in English, I wonder how drunk they were to come up with such a term, when the globally used term would be self-publishing. Of course the fee for those is €25 per code instead, five times as expensive as a publisher would pay for them.

And there is no documentation on how to apply for those yet, because of course they are on vacation still (January 6th is holiday in Italy, it’s common for companies, schools, etc. to take the whole first week off.) and of course they only started providing the numbers when the law entered into effect, to avoid the discrimination. But of course it means that until the authors can find the time to look into the needed documentation, they will be discriminated. Again, only in Italy, as the rest of Europe does not have any such silly rule.

Now, at least a friend of mine was happy that at least for the majority of the ebooks we’ll see a reduced VAT — but will we? I doubt so, as with any VAT change, prices will likely remain the same. When VAT increased from 20% to 21%, stores advertised the increased price for a week, then they came back to what they were before — because something priced at €3.99 wouldn’t remain priced at €4.02 for long, it’s even less convenient. In this case, I doubt that any publisher will change their MSRP for the ebooks to match the reduced VAT — I think the only place where this is going to make a difference is Amazon, as their KDP interface now matches the US price to the ex-VAT price of the books, so that the prices across Amazon websites no longer match across markets as they apply the local VAT, but I wouldn’t be surprised that publishers would still set a MSRP to Amazon to match the same in-VAT price before and after the 22%→4% change, essentially increasing by over 10% their margin.

I’m definitely unconvinced of the new VAT regulations in Europe; they are essentially designed as a protectionistic measure for the various countries’ companies for online services. But right now they are just making it more complex for all the final customers to figure out how much they are paying, and Italy in particular they seem to just be trying to ruin the newly-renewed independent authors’ market which has been, to me, a nice gift of modern ebook distribution.