Italian digital service tax applicable to the video gaming, esports and gambling services?

The Italian tax authority guidelines on the digital service tax (DST) increased the risk of its applicability to video gaming, esports, and gambling markets.

What is the Italian digital service tax (DST)?

In a previous post, I discussed the Italian service tax, a 3% revenue-based tax applicable to qualified digital services that indicate a high degree of users’ involvement in the generation of value.

The tax is due by both Italian and foreign service providers. It covers both B2C and B2B transactions generated by business activities that, individually or at the group level, jointly meet, in the previous fiscal year, the following thresholds:

  • the total amount of worldwide revenues (wherever arising) equal to or exceeding € 750 million and
  • revenues from qualified digital services (as defined below) arising in Italy/ linked to Italian users equal to or exceeding € 5.5 million.

The tax is to be paid by Italian taxpayers and non-Italian-resident companies regardless of the nature of the recipient of the B2B or B2C service, but intragroup transactions are excluded.

To which services is the Italian DST applicable?

Three categories of transactions subject to the digital service tax:

  1. placing advertisements on a digital platform targeted at users of that interface ( targeted advertising);
  2. making available online platforms and multi-sided digital interfaces that allow users interaction and may also facilitate the supply of goods or services (i.e.intermediation services); and
  3. transmitting data collected about users generated from such users’ activities on digital interfaces (i.e., collecting users’ data and selling the data to another – data transmission services).

but there are also some expressly exempted categories.  However, the actual scope of services to which the DST is applicable remained unclear so far.

Is the digital service tax applicable to video gaming and gambling?

To clarify the scope of the DST, the Italian tax authority released its official guidelines related to the Italian digital service tax, which have a section dedicated to online games, gambling, and betting, which is quite ambiguous and open to misinterpretation.

The guidelines refer to the applicability to “online games” meant as digital interfaces which allow different kind of gameplay with the interaction between players, as occurs on online gaming platforms and as part of esports competitions.

The mere supply of digital content as it could be the game is apparently out of DST’s scope, even though gambling and betting games, as well as videogames, where there is an exchange of value between players, risk falling within the perimeter, according to the guidelines since there is an interaction between players.

Besides, the Italian tax authority distinguishes the role of the distributor of digital contents (out of the scope of the digital tax) from one of the intermediaries (within the scope of the digital tax), underlining the relevance of the intermediation service concerning digital contents (such as in-game purchases such as loot boxes) performed via multiplayer online games. Arguably, according to the tax authority, the latter is captured by the digital service tax as a completely different activity from the mere supply of the gaming platform and becomes relevant for the DST’s purposes when the scope of the digital multiplayer interface is exclusively or predominantly to allow the sale/acquisition of digital content between end-users (i.e., players).

What next steps do I recommend?

Giulio CoraggioThe guidelines on the DST underscore that a case-by-case analysis based on the review of the Ts&Cs of the service and the business model impacts the qualification of the service and, therefore, on whether the digital tax is applicable or not.

Yet, the digital service tax’s applicability might derive if there is the communication of advertising contents through the platform, as it might occur if it was embedded in the games or case of sale to third-party of data collected through the digital interface.

Given the potential financial impact of the Italian digital service tax on the gaming and gambling business and on the one of platform providers due to the ambiguity of the guidelines’ language, operators, suppliers, video game publishers and esports tournament organizers might be wise to review their business model deeply. Also, they might consider requesting a ruling from the Italian tax authority to avoid that the lack of payment of taxes is challenged at a later stage.

On the same topic, I recommend reading “The Italian digital tax is in place, is it applicable to your company?“.

Image courtesy Ryan Adams

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Giulio Coraggio

I am the head of the Italian Technology sector and the global head of the IoT and Gaming and Gambling groups at the world-leading law firm DLA Piper. IoT and artificial intelligence influencer and FinTech and blockchain expert, finding solutions to what's next for our clients' success.
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