Italy to introduce tax on digital companies from 2020

Italian Economy Minister Roberto Gualtieri said in a parliamentary hearing on Tuesday: “Profits have to be taxed where they are made.”

Italy approved a new tax on digital companies as part of its 2020 draft budget on Wednesday, and plans to introduce the new measure from next year. The levy will oblige web-based giants to pay a 3% levy on internet transactions, according to the text of the draft budget. The scheme is expected to yield around €600 million each year, as Italy scrambles to find alternative revenues that will allow it to avoid a scheduled increase in sales tax.

Italy and fellow European Union members have long complained about the way Facebook, Google and other web giants collect huge profits in their countries but pay taxes of a few million euros per year at most.

Italian Economy Minister Roberto Gualtieri said in a parliamentary hearing on Tuesday: “Profits have to be taxed where they are made.”

In a report by Reuters, digital companies shift earnings to low or even no tax locations such as Ireland which means under international treaties they are protected against paying tax in countries where they do not have what is termed a “permanent establishment”.

The Italian web tax will be applied to companies with annual revenues worth at least €750 million and digital services exceeding €5.5 million.

The measure was originally intended to come into effect in 2019 before it was pushed back until next year and will be implemented through a government decree.

The Treasury forecast last December stated that the web tax would bring in revenues of €600 million from 2020.

Gualtieri also said Italy has asked the European Commission to present a proposal on minimum taxation for companies across Europe.

EU Economic Affairs Commissioner-designate Paolo Gentiloni, a former Italian prime minister, has said he plans to oversee EU efforts to harmonise corporate taxes across the 28-nation bloc.

Gualtieri also said the EU will introduce a tax on digital services even in the absence of a global accord on a web tax.

Last week, Italy launched an investigation into Netflix’s tax evasion over alleged undeclared taxes in the country for media products sold to Italian viewers.

The court in Milan claimed Netflix should pay taxes in Italy despite the fact it no longer has a physical headquarters in the country, a source close to the investigation revealed.

Netflix chief executive and founder Reed Hastings announced a production partnership with Italy’s biggest commercial broadcaster on Tuesday in Rome, where he confirmed the US streaming service has plans to open new offices in Italy and pay taxes to the country.

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