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Italy Enacts Budget Law 2019, Laying Groundwork for Digital Services Tax

Robert Sledz  

· 5 minute read

Robert Sledz  

· 5 minute read

On December 31, 2018, Italy published Law No. 145 of 2018 in the official gazette, which enacts the 2019 Budget. Articles 35-49 of the legislation explicitly repeal the tax on digital transactions introduced on December 29, 2017, in Law No. 205 of 2017 (Budget Law 2018) that has not entered into force, and introduce a replacement digital services tax (DST) modelled off the European Commission’s (EC’s) March 21, 2018 proposed directive regarding the same.


On May 16, 2018, Italy issued a public consultation on the March 21st proposals by the EC regarding taxation of the digital economy. The EC proposals include a proposed Council Directive for rules on corporation tax of a significant digital presence, and a proposed Council Directive for a DST on revenues derived from the supply of certain digital services by taxable persons. The deadline for comments was June 22, 2018.

The EC’s proposed DST is aimed at addressing the tax challenges of the digital economy in the EU. The EC said that current EU tax rules were not designed to address today’s global digital business, where the user has little or no physical presence in the taxing jurisdiction.

The DST would be an interim digital tax (e.g., 3%) to cover the main digital activities that currently escape tax altogether in the EU. This interim tax would apply to revenues created from activities where users play a major role in value creation, including from the following:

  • Selling online advertising space.
  • Digital intermediary activities (which allow users to interact with other users and which can facilitate the sale of goods and services between them).
  • The sale of data generated from user-provided information.

Under the EC’s proposal, the interim tax revenues would only apply to companies with total annual worldwide revenues of €750 million and EU revenues of €50 million.

According to Reuters News, on December 4, 2018, during the monthly ECOFIN meeting, France and Germany put forward a joint proposal to water down the EC’s DST. The new Franco-German proposal would still impose a three percent levy, but would not cover data sales and online marketplaces, since it would be focused on advertising revenues. French Finance Minister Bruno Le Maire said that if the tax were adopted, individual countries like France would be free to impose it on a wider basis. Under the Franco-German proposal, the tax would not come into force until January 1, 2021, and only if no broader international solution has been found.

Editor’s Note: The ECOFIN contains economics and finance ministers from all 28 EU members states, which meets several times a year, as needed, to discuss EU tax policy.

Italian DST

The Italian DST in Articles 35-49 of Law No. 145 of 2018 contains the features discussed above (e.g., a 3% rate), but includes an annual threshold for Italian revenues of €5.5 million. Article 39 says that revenues include total gross revenues, net of value added tax and other similar taxes. Taxable revenues obtained by an entity or individual in a tax period will be treated as obtained in an EU member state in that tax period if users of the taxable service are located in that member state in that tax period, according to Article 40 of Law No. 145 of 2018.

Editor’s Note: Spain’s Ministry of Finance issued a consultation draft on October 23, 2018, to introduce a similar DST, but with an annual threshold for Spanish revenues of €3 million. Public comments were due by November 15, 2018.

Italy’s Ministry of Economy and Finance is to issue an implementing decree by around April 30, 2019, on the DST, according to Article 45 of Law No. 145 of 2018. Italy’s DST will enter into force around sixty days later (i.e., around June 30, 2019).

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