Italian web tax: the Digital Service Tax

The Italian 2020 Budget Law (by amending the 2019 Budget Law) introduces a new Italian web tax, precisely a Digital Service Tax, that applies from 1° January 2020.

The new Italian web tax (Digital Service Tax) applies to the revenue deriving from the supply of specific digital services during the calendar year.

The taxpayers of the Italian digital tax

The new Italian web tax (Digital Service Tax) address the business entities who, individually or as a group, in the previous calendar year, obtained:

  • revenues generated anywhere not less than € 750 Million;
  • revenues derived from digital services (as defined below) collected in Italy for at least € 5.5 Million.

The digital services covered by the Italian web tax

The Italian web tax (Digital Service Tax) applies to revenues deriving from the supply of the following digital services:

  • conveying advertising on digital interface aimed at users of the latter;
  • 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 or services;
  • transmission of data collected by users and generated by the use of a digital interface.

Instead, the Italian web tax (Digital Service Tax) does not address different kinds of digital services, such as:

  • direct supply of goods and services, as part of a digital brokerage service;
  • supply of goods or services ordered through the website of the supplier of those goods and services, when the supplier does not perform intermediary functions;
  • provision of a digital interface whose exclusive or primary purpose is providing the users of the interface (by the person managing the interface) with digital content, communication services or payment services;
  • provision of a digital interface used to manage or control some financial instruments or activities subject to the authorization of a regulatory authority;
  • transfer of data by the subjects that provide the services indicated the previous point;
  • organization and management of electronic platforms for the exchange of electricity, gas, environmental certificates and fuels, as well as the transmission of the related data collected and any other related activity.

The tax base of the Italian web tax

Revenues subject to the Italian web tax (Digital Service Tax) do not include the ones coming from services provided to entities which are controlled by or control the taxable person and neither the one provided to entities controlled by the same controlling entity (according to art. 2359 of Italian civil code).

Taxable revenues are assumed gross of costs and net of VAT and other indirect taxes.

Fees paid by users be in contact and interact with each other (also to facilitate the direct supply of goods or services) also include those for the provision of the services of making available a multilateral digital interface, as well as fees paid by the users of the multilateral digital interface.

Only fees paid as consideration for the sale of goods or the provision of services which (in economic terms) constitute independent transactions of access to and use of the taxable service are excluded.

Also consideration for making available a digital interface that facilitates the sale of products subject to excise duty are not subject to the Italian web tax (Digital Service Tax) when they have a direct and inseparable link with the volume or value of these sales.

The tax period of the Italian digital tax

The tax period for the Italian web tax (Digital Service Tax) coincides with the calendar year.

Regarding the amount of taxable revenue, the fundamental principle is that revenues are taxable in the tax period in which the user of a taxable service is located in the Italian territory.

 A user is considered localized in the Italian territory if:

  • for services of conveying advertising on digital interface aimed at users of the latter, advertising appears on the user’s device when the device is used in the Italian territory during the tax period to access a digital interface;
  • for services consisting in 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 or services: 1) the service involves a multilateral digital interface that facilitates the corresponding sales of goods or services directly between users, the user uses a device in the territory of the State in the tax period to access the digital interface and concludes a corresponding transaction on this interface in said tax period; 2) the service involves a multilateral digital interface of a type that is not among those referred to in number 1), the user has an account for all or part of this tax period which allows him to access the digital interface and this account was opened using a device in the territory of the State;
  • for services of transmission of data collected by users and generated by the use of a digital interface, the data generated by the user (who has used a device in the territory of the State to access a digital interface, during this tax period or a previous tax period) are transmitted in that tax period. 

The device is considered to be located in the Italian territory with reference mainly to the internet protocol (IP) address of the device itself or another geolocation system, in compliance with the rules relating to the processing of personal data.

The amount of the taxable revenue

When a taxable service is provided in the Italian territory during a specific calendar year, taxable revenues are the result of all the revenues deriving from digital services (wherever realized) multiplied by the percentage of revenue deriving from the part of these services connected to the Italian territory

This percentage is equal:

  • for services of conveying advertising on digital interface aimed at users of the latter, to the proportion of advertising messages placed on a digital interface according to data relating to a user who consults this interface while it is located in the Italian territory; 
  • for services consisting in 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 or services, if: 1) the service involves a multilateral digital interface that facilitates the corresponding sales of goods or services directly between users, to the proportion of the delivery of goods or services for which one of the users of the digital interface is located in the Italian territory; 2) the service involves a multilateral digital interface of a type that does not fall among those referred to in number 1), to the proportion of users who have an account opened in the Italian territory which allows access to all or part of the available services interface and who used that interface during the calendar year in question;
  • for services of transmission of data collected by users and generated by the use of a digital interface, to the proportion of the users for whom all or part of the data sold was generated or collected during the consultation of a digital interface when they were located in the Italian territory.

The amount of the Italian digital tax

The Italian digital tax (Digital Service Tax) is obtained by applying the rate of 3 % to the taxable revenues made by the taxable business entity during the calendar year.

Taxable persons are required to pay the Italian digital tax (Digital Service Tax) by February 16 of the calendar year following the one in which the taxable digital services are provided.

The same subjects are required to file an annual tax return indicating the value of taxable services provided by March 31 of the same year.

For companies belonging to the same group, a single group company is appointed to fulfil the obligations deriving from the provisions relating to the Italian digital tax.

The obligations for non-resident business entities

Non-residents business entities with no permanent establishment inside the Italian territory and an identification number for VAT, who during a calendar year are subject to the Italian digital tax must request the Italian Tax Authority an identification number for the specific purpose of the Italian digital tax.

The request should follow the provisions of the Director of the Italian Tax Authority.

Non-resident business entities with no permanent establishment inside the Italian territory, established in a State other than a Member State of the European Union (or of the European Economic Area with which Italy has not concluded an administrative cooperation agreement against tax evasion and fraud and a mutual assistance agreement for the recovery of tax credits), must appoint a tax representative to fulfil tax reporting and payment obligations related to the Italian web tax.

Entities residing in the Italian territory and belonging to the same group as the subjects mentioned above are jointly and severally liable with the latter for the obligations deriving from the provisions relating to the tax on digital services.

Insofar as they are compatible, VAT provisions regulate assessment, penalties, collection and litigation related to the Italian web tax.

The taxable persons of the Italian web tax (Digital Service Tax) must keep a specific accounting to record monthly the information on the revenues of the taxable digital services, as well as the monthly quantitative elements used to calculate the proportions of taxable revenue.

The information on the amounts collected monthly should specify, where necessary, the amount collected in a currency other than the euro and the amount converted into euro.

The Italian web tax (Digital Service Tax) will be automatically abolished when international agreements to tax the digital economy will enter into force.

To request International Tax Advice, e-mail us at info@itaxa.it or fill out the Contact Form.

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Antonio Merola, LL.M.

Tax Lawyer specialized in International Taxation at the International Tax Center of the University of Leiden (The Netherlands) by attending the LL.M. (Master of Laws) in International Tax Law (after a University Master in International Tax Planning and a University Master in Tax Law in Italy), for several years he has been dealing with Tax Consulting and Tax Litigation in favour of Individuals and Companies.