A proposal for an Italian web tax applicable to foreign online e-commerce and gaming operators might have a relevant impact on their business.
Update of 27.12.18 – An Italian web tax was eventually adopted and you can find the details in this article “Italian digital tax – what it is, how it works and when it applies?“
The long story of the Italian web tax
During the last 3 years, the life of online operators has been always “disrupted” during the last months of the year by the proposals of the Italian Parliament on the introduction of a potential web tax applicable to non-Italian operators offering their products/services in Italy. This had happened in 2014 with the so called Google tax and in 2015 with the digital tax. Both proposals however had not been eventually passed.
The “hidden” permanent establishment of the new web tax
The new proposal around the web tax introduces a concept of “hidden” permanent establishment for tax purposes in Italy for foreign operators that perform digital activities (to be identified by the Italian tax authority) in Italy. Such permanent establishment is meant to occur when the operator
- processes more than 500 transactions in a semester and
- receives in the same period an amount of at least € 1 million.
If the hidden permanent establishment is challenged by the Italian tax authority to an operator, the authority will notify the occurrence to the operator which has a 30 day window to “cure” its position, also in relation to past activities. But the most “tricky” provision is that, if no cure procedure is activated by the operator, Italian financial intermediaries will be instructed to deduct from processed payments a 26% tax.
Is this a real threat?
If the law is passed, foreign online operators would be treated as Italian operators in relation to their revenues generated in Italy which might have a massive impact on their business.
However, together with my tax colleague Giovanni Iaselli, we are assessing the potential compliance of such law with international tax treaties and whether such move would be in line with the recent approach of the Italian Government that is attempting to encourage investments in Italy. Therefore, feel free to contact us, should you need any clarification on the topic.
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