Italy introduces web tax, updates PE definitions

by Davide Anghileri

The Italian Parliament has approved the 2018 budget law which, among others, introduces a new tax on digital transactions and updates the concept of permanent establishment to make it more consistent with the OECD/G20 base erosion profit shifting (BEPS) report on Action 7.

Italy’s web tax

The budget law, approved late December 2017, imposes a new tax on digital transactions, applying to the delivery of services via electronic devices to physical and juridical persons resident in the territory of the Italy. This new tax is expected to enter into force January 1, 2019.

The tax will be charged with a rate of 3% on the value of a transaction regarding any entity, resident or non-resident. that, in a single year, delivers services more than 3000 times.

The bill clarifies that the value of a single transaction is the value of the payment made in consideration for the services delivered, net of VAT, independently from the place where the transaction is concluded.

A decree will be issued by the Ministry of Finance no later than April 30, 2018, listing the services that fall into the scope of the web tax, implementing the details of the law.

In any case, the bill states that the concept of delivery of services via electronic devices is a service performed via the Internet or another electronic network whose nature makes the service essentially automatic, requires minimum human intervention, and impossible to be performed without the use of information technology.

The bill states that the tax will be paid by the purchaser of the services at the moment the payment for the service is delivered and charged on the entities delivering the services. Purchasers will be obliged to transfer the tax on the entities delivering the services and to pay the tax no later than the 16th day of the month following the month the payment is made.

Italy’s web tax will enter into force from January 1st of the year following the entry into force of the Ministry of Finance decree (presumably from January 2019).

Permanent establishment update

Budget law 2018 also includes new measures reflecting a broader definition of permanent establishment (PE) for Italian law. The proposal would make the definition of PE more consistent with the BEPS report on Action 7.

The Italian amendment, therefore, extends the agency PE definition, makes the “negative” list conditional on the taxpayer proving the preparatory or auxiliary nature of the activities, and includes the anti-fragmentation rule.

Moreover, the bill updates the list of the examples that may give rise to a PE, adding the possibility to create a PE in case of a significant and continuous business presence on the Italian territory arranged in a way as not to give rise to a physical consistency therein.

Davide Anghileri

Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.

Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues. He can be reached at

Davide Anghileri

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