Italy passes €1bn Google tax law - then promptly delays it for six months

Italy passes €1bn Google tax law - then promptly delays it for six months

Summary: After clearing parliament, a tax law that would force online advertising sellers from outside Italy to make themselves taxable in the country has hit a road block.

TOPICS: Government, EU

Italy's parliament has passed a controversial law that will increase taxes on foreign internet companies — the implementation of which was promptly delayed by the country's prime minister for six months.

The law, included in the budget bill passed by parliament just before the new year, would force non-Italian companies selling online advertising to get a VAT number that would make them taxable in Italy — earning it the popular name of the Google tax' or 'web tax'. In the form it was passed by parliament, the tax was due to become law on 1 January, but now it is scheduled to take effect from 1 July.

The delay in implementing the tax will give Italy time to formally alert the European Union to its arrival, potentially heading off an investigation into the tax's legality. It will also give supporters time to drum up support both in Italy and abroad while detractors will have a chance to get the law cancelled even before it gets implemented.

The new tax attempts to address the practice by many larger internet companies of headquartering their European operations in an EU country with a very low corporate tax rate, such as Ireland in the case of Google and Facebook and Luxembourg for Amazon. Their operations in other European countries are deemed by the internet giants to be subsidiaries purely tasked with sales and marketing or fulfillment, often meaning the companies end up paying little or no tax in major European markets where they garner significant revenue.

Google, Facebook and Amazon have so far declined to comment on the Italian internet tax.

Some see the new tax as a threat to Italy's already relatively small ecommerce market. Less than two percent of Italian retail sales were made online in 2012, the lowest of any large European country, according to data collected by the Centre for Retail Research. In France the level is almost nine percent, in Germany 10 percent and in the UK almost 13 percent.

Supporters of the new Italian tax have said they will push for the EU to implement a similar tax across all member states. The lack of harmonisation has been one of the main points disputed by those seeking to block the tax.

While politicians sponsoring the tax have said it will raise at least €1bn for the cash-strapped Italian government, that figure is disputed by many commentators who have argued Italy will damage its economy if it implements the internet tax without other European countries doing the same.

While previous attempts in Italy to increase taxes on large internet companies have failed, this time the success, muted as it is at the moment due to the delay, is in part linked to the decision not to tax the multinationals directly but rather to force them to set up Italian taxable entities or to use Italian intermediaries.

An earlier proposed version of the tax would have forced all companies selling anything online, not only advertising, to set up an Italian VAT number so they could be taxed.

The US embassy in Rome lobbied to have the internet tax cancelled or at least delayed, according to unsourced reports in the Italian media.

Topics: Government, EU

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  • Adds.

    "Google, Facebook and Amazon have so far declined to comment..."

    Since you left out Microsoft, what did they say?
  • Ouch

    EU states are supposed to be fully sovereign, but even US states don't have to consult with each other or the feds before imposing new taxes.
    John L. Ries
    • The EU is a tax union, like Australia

      Like the Commonwealth of Australia, which is a federation for the "Common wealth" of States, not of the people, built around a mantra of free trade, the EU is first and foremost a trade focused union, which means taxes need to be controlled and agreed to.
      The US on the other hand was envisaged in a time before free trade was the primary driver for federation.
      • Or rather...

        ...before "free trade" was a comprehensive ideology.

        The US Constitution has always barred the states from imposing import or export duties (these are literally the only taxes states are barred from imposing); and it gives Congress the authority to regulate interstate and international trade, to establish a common currency, common standards for weights and measures, and common bankruptcy laws. Apparently, that's all the framers thought was required to insure free trade among the states. And the federal courts are there to make sure both federal and state laws conform to constitutional standards (no consultation required).
        John L. Ries
  • this seems really easy to bypass

    Google et al could just have their main .com website redirect people from Italy or whatever other European country to the website in Ireland/Lux, but with a special script running to give them italian results. that would, as far as I know, totally bypass any obligation to setup Italian operations, and 99% of users wouldn't even notice the difference. Kinda like google rerouting mainland Chinese to the hong kong website.
    • How would Italy handle that?

      I wonder how Italy would handle that sort of thing. Even if you can't prosecute someone who stays within the letter of the law, I'm sure that they're going to be keeping close notes if they feel that the spirit of the law isn't being followed.
      Third of Five
      • it would piss the Italians off for sure

        but there's really nothing they could do about it. they can't block google- not only would that be illegal, there would be total outrage.
        • Maybe not block them...

          Even if nothing can be done about Google's practices before the law is passed, future measures would probably encompass significantly more in order to close the loopholes.
          Third of Five
          • I'm sure they'll try to think of something

            but I can't think of anything they could actually do
  • It could be right

    If Google is making money in Itally why shouldn't it pay taxes to Italy? It is much more logical than having to pay taxes to the country where you do not live, have no property and do not spend or earn any money.
  • Lower the taxes

    Or Italy could do something smart and lower their tax rate to attract business to their country!