Italian tax authorities accuse Booking.com of VAT fraud

By Daniele Majorana, MICCINESI Tax, Legal & Corporate, Milan

The Netherlands-based online accommodation travel agency Booking.com allegedly evaded payment of around EUR 153 million (USD 182 million) in value-added tax (VAT) in Italy from 2013–2019, according to an investigation by the Italian finance police (Guardia di Finanza) announced 10 June.

During the years at issue, the company acted as an intermediary in renting homes owned by private individuals who do not qualify as taxable persons for VAT purposes in Italy.

The Italian tax authorities’ accusations against Booking.com are the latest in a series of tax avoidance investigations of digital companies in the country.

In the last three years, the Milan Public Prosecutor’s Office coordinated tax evasion investigations by several web giants. Apple reached an agreement with the Italian Revenue Agency (Agenzia delle Entrate) in 2015 for EUR 318 million (USD 379 million). In 2017, Google settled with the tax authorities for EUR 306 million (USD 365 million) and Amazon for EUR 100 million (USD 119 million). In November 2020, it was Facebook’s turn, which settled for EUR 106 million (USD 126 million).

Alleged tax violations

The investigation into Booking.com started in 2018 from a series of tax assessments of private individuals who manage accommodation facilities in a non-entrepreneurial way (e.g., bed & breakfast operators – B&B) particularly in the Levante Ligure area. Owing to their occasional and non-habitual basis activity, B&Bs do not qualify as taxable persons in Italy for VAT purposes and do not have an Italian VAT number.

The Guardia di Finanza reconstructed year-by-year the VAT that Booking.com allegedly evaded in Italy (applying the 21% rate for the 2013 period and 22% for the following years), focusing its investigation on several factors, including the invoices issued in Italy to private individuals without a VAT identification code.

The investigation also looked into the contracts stipulated with the managers of the accommodation facilities (without VAT registration number but with the KYP form, i.e., “know your partner”). They also reviewed the certificates of presentation and or payment of VAT to the Dutch authorities concerning the services provided to private individuals. Investigations into databases and company documents uncovered that Booking.com had never paid VAT for intermediation with private individuals.

In the view of Guardia di Finanza, the tax is due, and Booking.com, according to the accusations, should charge VAT on fees charged, which otherwise escape the Treasury. Therefore, at the end of the investigation, the Italian financial police accused Booking.com of evading over EUR 150 million VAT in Italy. The tax documents show that the company issued invoices without charging VAT by applying the so-called ‘reverse charge’ mechanism even when the accommodation facility was not registered, resulting in the tax not being declared or paid in Italy.

The damage is twofold. First, the Treasury loses significant income. Second, the hospitality market suffers because the Booking.com web platform benefits from an unfair competitive advantage. Businesses, unlike private individuals who do not have a VAT number, regularly pay the tax.

The Italian investigation has reportedly attracted the attention of several European tourist destination countries, with the tax authorities of these nations informally asking investigators for information on the matter. 

“In line with European legislation on VAT,” Booking.com said in a note, “we believe that all our partner structures in the European Union, including the Italian ones, are responsible for assessing the payment of local VAT and paying it to their respective governments”. This answer reflects Booking.com’s VAT approach. Booking.com had not appointed its tax representative or identified itself in Italy and therefore had not submitted the relevant declaration. As a result, it avoided paying the tax either in Italy or in the Netherlands.

The company further confirmed that it has received the VAT assessment and will cooperate with the authorities in the investigation.

Applicable law

When providing a service as an intermediary for renting homes owned by individuals who do not have a VAT code, Booking.com would have to operate as a tax substitute, registering in Italy or using a fiscal representative.

According to article 46 of EU directive 2006/112/CE and Article 7-sexies paragraph 1 letter a) of Presidential Decree No 633/72 (the Italian VAT Decree), intermediary services delivered in the name and on behalf of private customers are deemed to be performed where the hotel service subject to the intermediation is carried out, i.e., Italy. Consequently, in this case, the Italian VAT provisions apply.

Therefore, in the case of intermediary services rendered to foreign private individuals for tax purposes, the services are considered to be performed in Italy if the accommodation facility is located in Italy. All this includes online intermediation portals (OTA), which also operate in short-term rentals.

To offer intermediation in accommodation in Italy, online portals must identify themselves in Italy or appoint their own fiscal representative. It is the responsibility of the real estate portals to verify the ‘status’ of the intermediary. The territoriality rule applicable to the operation and the modalities of payment of tax (VAT) depend on this verification.

According to Article 17, paragraph 3 of the Italian VAT decree, if the customer is not a VAT taxable person established in Italy and the transaction is territorially relevant, the reverse charge mechanism is not applicable. Consequently, the obligations or rights deriving from applying the VAT regulations are fulfilled by the supplier established abroad, either directly, if identified in Italy (Article 35-ter of the Italian VAT Decree), or through the supplier’s tax representative.

For this purpose, it is worth noting that, in Italy, as of 1 July 2021, with the implementation of the VAT package for e-commerce, the MOSS (mini one-stop shop) regime will be extended to all business-to-consumer (B2C) services.

The MOSS system manages VAT obligations implemented by the EU member states through specific information technology procedures. In practice, by opting for the MOSS, the taxable person sends quarterly VAT returns electronically through the electronic portal and makes payments exclusively in its member state of identification.

Quarterly VAT returns and payments relate exclusively to transactions made to final consumers, even if they are resident or domiciled in other EU countries. Consequently, starting from 1 July, by opting for MOSS, there is no need to appoint a tax representative or identify a permanent establishment in the individual EU countries.

—Daniele Majorana is Of Counsel at MICCINESI Tax, Legal & Corporate, Milan

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