Italian digital services tax is knocking at the door

By Francesca Amaddeo, Lecturer-Researcher, Tax Law Competence Centre (SUPSI), Manno, Switzerland

On 17 December, the Director of the Italian Revenue Agency released draft administrative regulations clarifying the essential elements of the national digital service tax.

The OECD and the EU are working on a coordinated approach based on the two well-known pillars, but since an agreement is still lacking, countries are trying to fill the gap.

The Italian digital service tax, implemented by Law n. 145/2018 (as updated by Law n. 160/2019), has been enforced since 1 January 2020.

It applies to revenue derived from some digital services provided by enterprises at a 3% tax rate.

Ten-point list on the Italian digital service tax

Despite the general structure of the tax, the complexity of issues required more detailed definitions.

The Italian government’s ten-point list shines a light on these loose ends.

First, who are the subjects addressed by such a tax?

The guidance states that the tax is imposed on those enterprises or entrepreneurs, i.e., those carrying on business activity that satisfy two criteria. First, the entity must realize revenue not less than USD 930,000 (EUR 750,000) and, second, revenue must be realized in the territory of the State from digital services of not less than USD 6,800,000 (EUR 5,500,000).

It is worth noting the emphasis put on the territorial link. The Italian formula solves this long-standing issue by defining the revenue as taxable whereas the user is exploiting the digital service provided through a device localized in the territory.

Localization is mainly based on an IP address check or, in the alternative, through other geo-localization methods.

Notwithstanding, non-residents eligible for the digital service tax, but without a permanent establishment in Italy nor a VAT identification number, must apply to the Italian revenue agency for an identification number for digital services tax purposes.

Relevant activities and exceptions

Services covered encompass online placement of advertising, i.e. placement on a digital interface of advertising aimed at users of the same platform;  digital platforms that ease the interaction between users, i.e. making available a multilateral digital interface that allows users to be in contact and interact with each other, also to facilitate the direct supply of goods and services; and sale of collected user data.

Among others, services excluded from the application of the tax include the direct supply of good and services, as part of a digital intermediation service; the supply of goods or service ordered through the website of the supplier of those goods and services, when the supplier does not perform intermediary services; the provision of a digital interface whose exclusive or main purpose is to supply the users of the interface, by the party managing the same interface, with digital content, communication services or payment services; the provision of a digital interface used to manage trading platforms and settlement systems for interbank or financial instruments and other services subject to monitoring by a regulatory authority, and the organisation and management of telematics platforms for the exchange of electricity, gas, environmental certificates, and fuels, as well as the transmission of the relative data collected therein and any other related activity.

Taxable revenue

The 3% tax rate applies to revenue earned within the calendar year.

It is worth noting that revenue earned within the calendar year is determined at the gross of costs and the net of VAT and other indirect taxes.

Revenue derived from intra-group services is not included in the tax base.

Moreover, taxable revenue is determined based on the total amount of revenues per percentage realized with a link to Italian territory. This means while the user was located in Italy.

A specific tax return must be fulfilled by 31 March of the calendar year following the year whose revenues refer, while the payment is due by 16 February.

In particular, non-resident persons without a permanent establishment in Italy, established in a state other than a member state of the EU or of the European Economic Area, with which Italy has concluded neither an administrative cooperation agreement to fight tax evasion and fraud nor a mutual assistance agreement for the recovery of tax claims, must appoint a tax representative to fulfill the reporting and payment obligations of digital services tax.

Remarks

The final version of the guidance is expected to be published shortly.

Consistently with the so-called sunset clause, the Italian digital service tax will be automatically repealed once an international agreement is concluded on a digital services tax.

• Bio
• Latest Posts
• Contact

Francesca Amaddeo

Lecturer-researcher at Tax Law Competence Centre, Department of Business Economics, Health and Social Care, University of Applied Science and Arts of Southern Switzerland (SUPSI)

Dr. Francesca Amaddeo, PhD in European law and national legal systems, is an Italian lawyer that works as Lecturer-researcher at the Tax Law Competence Centre, Department of Business Economics, Health and Social Care, University of Applied Science and Arts of Southern Switzerland (SUPSI).

Latest posts by Francesca Amaddeo (see all)

• International taxation: two-pillar plan and the OECD mainstream - February 28, 2022
• Swiss federal act on implementation of international tax agreements: ready for January 2022 - November 23, 2021
• EU Commission seeks to ease withholding tax mechanism on cross-border investments - October 26, 2021
• CJEU to review German transfer pricing obligation: do national tax rules affect EU freedoms? - October 11, 2021
• Switzerland advances withholding tax reform - May 17, 2021

email: [email protected]