Italian Digital Services Tax to be introduced from 1 January 2020

Article 1, para 35-50 of Law no. 145 of 30 December 2018 (i.e. Italian Budget Law for 2019) introduced the Digital Services Tax (DST) on turnover derived from certain "digital services”. The entry into force of the DST was subject to the issue of a Ministerial Decree that should have provided the related operative instructions. However, the DST never came into force, as the implementing measures were never adopted.

The draft Italian Budget Law for 2020 – published on 2 November and to be approved by the Government by the end of December – should amend the previous version of the DST proposed last year.

Taxable persons

According to the new rules, the DST applies to revenues resulting from the supply of certain digital services, obtained by the taxable persons described below during a calendar year.

Taxable persons are businesses (e.g. Italian companies, non-resident companies with a local permanent establishment (PE) or identified in Italy for VAT purposes, as well as non-resident companies without a local PE nor identified in Italy for VAT purposes[1]) that, individually or at group level, in the calendar year prior to the one in which the taxable revenues are obtained, meets the following joint revenue thresholds:

1. A total amount of worldwide revenues of at least EUR 750 million;
2. A total amount of revenues from qualifying digital services in Italy of at least EUR 5.5 million.

Taxable services – Positive list

The DST will apply to revenues resulting from the provision of the following services:

1. The placing on a digital interface of advertising targeted at users of that interface (Digital Advertising);
2. The making available to users of a multi-sided digital interface which allows them to be in contact with and to interact with each other, also in order to facilitate the direct supply of goods or services (Sharing Economy);
3. The transmission of data collected from users and generated from the use of a digital interface (Data transmission).

The taxable revenues will include total gross revenues, net of VAT and any other indirect taxes.

Revenues deriving from the provision of the abovementioned services will not be taxable if the services are rendered to related parties (i.e. companies that are deemed to be parent, subsidiary or sister companies, pursuant to article 2359 of the Italian Civil Code).

Taxable services – Negative list

The DST will not apply to the provision of the following services:

1. The direct supply of goods and services, in connection with a digital brokerage service[2];
2. The supply of goods or services ordered though the web site of the supplier of goods or the provider of services, when the supplier or the provider does not perform the functions of an intermediary agent;
3. The making available of a digital interface for the sole or main purpose of enabling the entity making it available to supply to users:
   1. Digital contents; or
   2. Communication services; or
   3. Payment services.
4. The making available of a digital interface used to supply certain types of regulated financial services by financial institutions;
5. The selling of data by the financial institutions mentioned at point (d);
6. The performing of organisational and management activities of telematic platforms for the exchange of electricity, gas, environment and fuel certificates, as well as the transmission of the related data and any other tied activity.   

Taxable period

The tax period will be the calendar year.

Place of taxation

Revenue will be taxable in a tax period if the user of the taxable service is located in Italy in that period.

A user will be deemed to be located in Italy if:

1. For a service under (a), the advertising in question appears on the user's device at a time when the device is being used in Italy in the relevant tax period to access a digital interface;
2. For a service under (b),
   1. The user employs a device in Italy in that tax period to access the digital interface and concludes an underlying transaction on that interface in that tax period;
   2. The user has an account for all or part of that tax period that allows the user to access the digital interface and that account was opened using a device in Italy, in cases different to those in previous point (ii);
3. For service under (c), data generated from the user’s employment of a device in Italy to access a digital interface, during that tax period or any previous one, if transmitted in that tax period.

The device will be deemed to be used in Italy mainly by reference to the Internet Protocol (IP) address of the device itself or any other system of geolocation.

Tax calculation

DST will be calculated by applying a 3% rate to the amount of taxable revenues obtained by the taxable person during the calendar year. Specific rules apply for the determination of the taxable base.

Tax compliance

Taxable persons must pay the DST by 16 February of the calendar year following the one in which the taxable revenues are obtained. The same taxable persons must file the annual return to declare the taxable services by 31 March of the same year[3]. A specific accounting method must to be adopted by taxable persons for recording, on a monthly basis, data on revenues related to taxable services and any other useful quantitative data.

Entry into force

DST will apply automatically from 1 January 2020, without the issue of any Ministerial Decree establishing how to apply DST.

The Italian DST will be repealed when the internationally agreed provisions on digital economy taxation become applicable.

Eleonora Briolini
eleonora.briolini@bdo.it