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

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.
Written by Eric Sylvers, Contributor

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.

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