After numerous extensions, most recently intervened with the Support Decree, the Digital Service tax (also called web tax) introduced with the 2019 Budget Law, then amended with the 2020 Budget Law, is due to expire on 16 May.
The digital service tax is a newly introduced tax in our legal system, and it is linked to other types of intervention, at international level, regarding the taxation of the digital economy. This introduction has become ‘necessary’ especially in light of the strong growth that the digital economy itself is experiencing. The context is in fact increasingly expanding, considering the fact that all economic activities, even the most traditional ones, have adapted to the digital world. In short, as said by OECD, “the digital economy is increasily becoming the economy itself”.
What does the Digital Tax Service consist of and who is affected?
At a national level, the digital tax is applied at the rate of 3% on revenues deriving from the provision of specific services, such as digital advertising on websites and social networks, access to digital platforms, fees received by the providers of such platforms, and also the transmission of data “taken” from users. In other words, all those services for which the contribution of users located on the national territory is considered as an autonomous factor of wealth creation of the group.
By virtue of a particular mechanism, a portion of the gross profits that multinationals derive from the aforementioned digital services and, in particular, the portion attributable to the value generated by users as providers of big data, is subject to taxation in Italy.
More precisely, the new tax affects revenues related to:
- targeted advertising messages directed at users of a digital interface;
- the provision of a multilateral interface that facilitates communication between users;
- the transmission of digital data collected from users and generated by the use of a digital interface.
From a subjective point of view, the focus is on large multinationals: those obliged to pay the Digital Service Tax are in fact those who, in the exercise of a business activity, have realised, in the previous year and anywhere in the world, individually or as a group, revenues of at least 750 million euros and receive in the same period revenues for digital services located in the Italian territory of at least 5.5 million euros.
From an objective point of view, however, the aim is to tax revenues received by users located in Italy, to be identified through the ‘geolocation’ of the device, of which the IP address (Internet Protocol) may be an indicator.
The Digital Service Tax in the international context
In Italy, multinationals will soon have to pay the Digital Service Tax, but what is happening in other countries around the world and how they are dealing with the growth (and taxation) of the digital economy? On the international taxation level, the measures put in place can be divided into three different types of intervention, which can be categorised as follows:
- measures that seek to hit the profits made by multinationals operating in several countries, as for example the United Kingdom and Australia are doing through the diverted profit tax, aimed at preventing large multinationals (digital or not), which carry out activities in the country from diverting profits abroad to low-tax jurisdictions;
- measures that seek to “equalise’” the tax burden of groups by leveraging the digital presence in a given country and providing for the application of a withholding tax (such as, for example, the Indian equalization levy) or an ad hoc tax, such as the digital service tax applied by many European countries (France, Spain, Hungary, Austria, Belgium, the Czech Republic, and now also in Italy);
- measures aimed at creating new taxation criteria (e.g. with the new definition of digital permanent establishment) or at adapting already existing taxes to new digital businesses (e.g. Taiwan and Pakistan, which apply withholding taxes already provided for by the law and extend them to new digital transactions).
Looking at the European context, individual countries have acted autonomously on the taxation of the digital economy, creating many differences in the application of the tax, as shown in the table below:
|Country||Tax rate||Subject||Overall turnover threshold||Domestic turnover threshold|
|Austria||5%||Advertising||750 millions||25 millions|
|Belgium||3%||Sale of user data||750 millions||5 millions|
|Czech Rep.||5%||Targeted advertising
Use of multilateral Web interfaces and provision of user data
|750 millions||5 millions|
|France||3%||Web interface offer and advertising based on user data||750 millions||25 millions|
|Hungary||7,5%||Digital advertising||307 millions||n.a.|
At the international level, we are therefore in the presence of numerous uncoordinated measures, on the one hand with individual States, that are leveraging their taxation power to tax digital services autonomously, and on the other with Europe, that is aiming instead to introduce a harmonised tax on digital services and, above all, to avoid double taxation or violations of international treaties.
In addition to all this, there is also the discussion that Europe itself is trying to resume with the US administration under Biden. Plausibly, the European strategy aimed at implementing a unitary taxation of services could prevail, in order to prevent individual states from creating a “jungle” of taxes to the detriment of the competitiveness of European businesses, but it will be necessary first of all to adopt a shared scheme and to understand whether, and to what extent, this scheme will be shared by the United States.
A rather complex puzzle is thus emerging, arising from the gap between the production of digital value and the way it is taxed, for which a solution will (perhaps) be seen in the future.