Italian levy on digital services first step toward halting tax avoidance

Italy will become the first EU member state to start taxing online sales, with plans to start collecting a 6-percent levy on such transactions beginning in January 2019.

A budget committee of the Italian senate has passed a provision aimed at introducing a tax on digital sales. The proposal was approved on Monday in the form of an amendment to the 2018 budget.

According to the provision, a 6-percent levy would be applied on all digital sales (businessto-business and business-toconsumer). The new tax was estimated to produce an extra income of about 114 million euros ($135.9 million) per year for the Italian state. A major goal of the new legislation would be to tackle big multinational digital companies – such as Google and Facebook, for example – whose revenues are partly generated by online sales in Italy. The need for such a levy was being discussed at the EU level as well.

The start date is more than a year away, but it will still make Italy the first European country to formalize plans for such a tax, which has drawn strong criticism from online giants like Amazon, Apple, Facebook, and Google where it has been proposed.

The new regulation would be a change from current tax schemes, which tax profits and allow companies to log those profits in countries with low corporate tax rates.

Though the measure will add income to Italian government coffers, Paolo Cellini, a professor of Internet economics at Rome’s LUISS University, believes the main reasons behind the tax may be political.

“You have these giant Web companies making millions in profits,” Cellini told Xinhua. “It is easy to see some political motives behind the decision to tax them.”

Tommaso di Tanno, a tax expert and founder of the Di Tanno and Associates Studio, said the tax would be applied to “all digital services provided in Italy,” though it is not yet clear how and if intangible products – such as advertisements or intellectual property – will be taxed.

The Italian Ministry of Finance has said it will detail how the tax will work no later than April 2018, though it has said the levy will target large multinationals and not smaller Italybased companies, which will receive an exemption from the tax.

The estimate of the value of the tax that appeared in the Italian press is based on an estimate that taxable services will be worth around 2 billion euros ($2.4 billion), taxed at 6 percent. But di Tanno told Xinhua the size of the market could prove to be much larger over time. “There are no exact figures, but the estimates are that the European digital economy produces 400 billion euros ($480 billion) a year in revenue,” he said. “If 10 percent of that is Italian, that works out to 40 billion euros ($48 billion). Now that may be high. But even if it’s half that, it is not an insignificant amount of money.”

Regardless, the tax is unlikely to have a major impact on the digital sector – in part because other European countries are expected to follow Italy’s lead, and in part because the physical presence of these multinationals in Italy is relatively small.

“Facebook has around 20 employees based in Italy; Google may have 100,” Cellini said. “One of the reasons Italy can be first on this is because Italy gets less from these big tech companies than other countries do.”