This content is from: Italy

Italy: Italy implements new web tax on internet companies

Giuliano Foglia
Marco Emma
The Italian Parliament approved new controversial measures, which aim at tackling the base erosion effects of digital commerce. The main measure forces non-Italian companies selling online advertising to get an Italian VAT number to sell their services to Italian-based clients.

Such measure was introduced by the 2014 Budget Bill (Legge di Stabilità 2014) and provides that internet advertising services and online sponsored links (including search advertising services) can only be purchased, both directly or indirectly – including through media centers and third party operators – from and through entities (for example, publishers, advertising agencies, search engines or other advertisers) with an Italian VAT code. An earlier version of the Italian measure also applied to all e-commerce activities in Italy. It was then scaled back only to the sale of advertising space.

The measure – dubbed with the popular name Google tax or web tax by the Italian press – is believed to be the first of its kind in Europe: an attempt to combat the issue of big internet and technology companies' corporate taxable profits erosion, since in July OECD, at the request of the G20, proposed a blueprint to fight strategies used by certain internet companies to shift taxable profits into tax havens.

This provision, whose entry into force has been postponed by a subsequent decree to July 1 2014, stirred up broad debate. In fact, it raised several doubts on its capacity to effectively fight the above mentioned taxable profits erosion strategies and, on the other hand, it is widely thought to violate the rules of the EU single market and to go against the EU fundamental freedoms and non-discrimination EU principles.

The Italian 2014 Budget Bill provides two additional tax measures, effective as from January 1, affecting online advertising services and their ancillary transactions.

Firstly, in spite of the general transfer pricing OECD guidelines, companies carrying out online advertising business are no more allowed, for transfer pricing purposes, to use profit indicators based on the costs suffered for their activity. Such restriction would not apply, however, if the taxpayer agrees in advance with the Italian tax authorities under the international standard ruling procedure (advanced pricing agreements) the correct transfer pricing methodology applicable to the transactions carried out with related parties.

Furthermore, as from 2014 payments for online advertising (and ancillary) services must be exclusively carried out by bank or postal transfer or by alternative payment instruments granting to the Italian tax authorities a full traceability of the flows and of the beneficiaries.

Giuliano Foglia ( and Marco Emma (
Tremonti Vitali Romagnoli Piccardi e Associati
Tel: +39 06 3218022 (Rome); +39 02 58313707 (Milan)

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