The 2019 Italian Budget Law, still in a draft version undergoing final approval, introduced a new tax on revenues from qualifying “digital services” (Digital Service Tax, “DST”), reshaping the previous version of DST as introduced by the 2018 Budget Law, but which never came into force for lack of the implementing decree.
According to the draft, the amended DST should come into force as from January 1, 2020, without the need for further implementing rules.
The DST will apply to companies (whether or not resident in Italy) – stand-alone or at group level – meeting both the following requirements for the calendar year prior to the one in which the DST comes due:
- amount of worldwide revenues reported by the entity equivalent at least to EUR 750 million;
- amount of revenues from qualifying digital services linked to Italian users equivalent at least to EUR 5.5 million.
Then, in order to check whether the DST will be due on revenues achieved in FY 2020, companies should have exceeded the revenue thresholds listed above in FY 2019.
In this respect, it should be noted that, according to one of the proposed amendments (under discussion) to the draft Law available, only the threshold of revenues equivalent at least to EUR 750 million should be applicable, with no further reference to worldwide revenues, but to those generated in Italy.
The tax will be due at a rate of 3% on revenues generated from B2B and B2C “qualifying” digital services when tax is relevant in Italy, i.e., when the user is located in Italy. Intragroup transactions are excluded.
Such “qualifying” digital services are represented by the following three categories (briefly summarized):
- digital advertising;
- intermediation services;
- transmission of data.
However, an exclusion list has been provided (e.g., direct sale of goods or provision of services performed in the context of an intermediation service, or making a digital interface available where the sole or main purpose is to supply digital content, communication services or payment services for users).
For each tax period, companies shall determine the amount to be subject to Italian DST, as follows:
- to compute the overall worldwide taxable revenues from the provision of digital services (to any users, wherever located); and
- to determine the share of qualified revenues to be allocated to Italy.
Complex rules are established in order to determine the relevant portion of qualified revenues, mainly focusing on where the user is located and varying depending on the (3) different categories of relevant digital services. In general, a user’s device should be regarded as being used in Italy by reference to the Internet Protocol (IP) address of the device or any other method of geolocation, in respect of the protection and handling of personal data rules.
Companies subject to DST should prepare monthly accounting reports of revenues from digital services and illustrate the criteria through which a proportion of qualifying worldwide revenues is allocated in Italy.
An annual DST return should then be filed by March 31 of the calendar year following the one to which the DST refers. DST should be paid by February 16 of that same year. It follows that, for qualifying revenues generated in 2020, DST should be paid by February 16, 2021 and the DST returns should be filed by March 31, 2021. The Italian DST will also be due from non-resident business taxpayers, who – when established in a State that has not concluded an agreement for the mutual assistance with Italy for the recovery of tax claims – shall appoint a tax representative in Italy in order to handle the subsequent DST fulfilments in Italy.
