44 : The Global eBook Market: Current Conditions & Future Projections tax on your revenues. (This is known as ISS and PIS/ Co ns.) This, of course, challenges the agency model. As you can imagine, Brazilian publishers are desperate to control retail prices of ebooks to avoid deep discounting. If they could avoid deep discounts, the agency model would be perfect, especially if we assume only a stan- dard 30-percent US-style discount, which is much lower than the typical 50 or 55 percent that big Brazilian retail- ers demand from publishers. This is what everyone thought at the beginning of ebook trade, until an accountant told everyone that taxes should be paid using the agency model. As if that weren’t enough, the market is still discussing whether the agency model is even legal in Brazil, and no one has emerged with a de nitive answer. Also, let’s not forget that the agency model demands a very good invoicing process so that publishers can invoice customers directly. The Brazilian market is still far from such an optimum state. But even if a traditional wholesale model is adopted, there are still plenty of tax ambiguities for those trying to guarantee tax exemption. It always comes down to the business model and how you characterize what is being sold. Basically, you have three ways to look at the matter: (1) selling ebooks as print books on a regular commercial basis, even though ebooks are reproduced by the retailer and are technically sold before they are bought (2) considering distribution a service and living with the taxes or (3) working with distribution licenses that would characterize revenues as royalties, thus avoiding part of the taxes. So far there is no clear understanding or consensus in the market. This entire discussion takes place in every ebook distribution contract negotiation throughout Brazil. If you add a bit of global law and international money transfer taxation into the mix, you see how very compli- cated it can get. But again, the only real problem is that print books are tax-free in Brazil, and everyone is trying to nd a way to cross over to digital without paying more taxes. taxes. This is true for printed books, but when it comes to ereaders and ebooks, everything gets complicated if a company wants—and it should—to keep its tax-free status. So far, everyone is treating ebooks as tax-free prod- ucts, just like their printed counterparts. Despite there being no written law guaranteeing that this will con- tinue, everyone is trusting in the spirit of the law. When it comes to ereaders, though, no one expects to sell or import them tax-free unless the National Book Law is amended to include dedicated readers. This year (2012), the Brazilian senate is discussing a bill that would make dedicated E Ink-readers tax-free. If the bill passes, the prices of E Ink Kindles, Kobos, and Nooks would have to come down steadily. Importation taxes on dedicated ereaders could be as high as 60 percent, depending on how the ereader would be cat- egorized within the broader eld of electronics. In Brazil there are incentives and subsidies for certain types of computers and tablets, so it has been a headache to determine the tax percentage for imported ereaders, since they do not have their own category yet. Just as an example, the tax that an Apple distributor pays when importing an iPad to Brazil is 50.68 percent. Last year, Foxconn, the China-based Apple supplier for iPads and iPhones, made a tax deal with the Brazilian government to start producing gadgets locally. Production hasn’t begun yet, but the result will be lower taxes for local fabrication, and of course there would be no importation taxes. Foxconn executives and Brazilian politicians are still discussing details, so it might take some time before made-in-Brazil iPads show up on the market. Nevertheless, local production with government support may be a viable alternative for international manufacturers that want to sell their ereaders in Brazil. What really complicates taxes in Brazil relates more closely to ebook distribution models. Although books are tax-free, services are not. If you buy and sell books, there is no tax involved, but if you classify your distribu- tion work as a service, you may pay up to 14.25 percent