The web tax previously covered has now become more and more a Google tax given that its final approved version relates only to online ads and sponsored links, but the main issue concerns the obligations deriving from this provision.
According to the final approved version, it will be possible to purchase online ads and search engines sponsored links that can be showed on the Italian territory only from entities that hold an Italian VAT number and such obligation applies even if the purchase is performed through media companies. Therefore foreign companies like Google, Facebook and any search engines, but also for instance affiliate websites and potentially any company on the web selling online advertising shall hold an Italian VAT number.
Commentators have been struggling to identify the scope of the provision above which has not been clarified yet. Indeed, first of all, it refers to any online advertising or sponsored link that can be showed on the Italian territory which would potentially include the entire web. It is possible that the tax authority will identify some criteria to narrow down its applicability referring for instance to the language of the ad, but for the time being no clarification has been given.
Likewise, it is unclear the impact (if any) of the above obligation on VAT payments as – according to commentators – any new regulation introducing changes to the VAT treatment might be challenged for lack of compliance with European Union principles of freedom of services. And the scenario might be even more difficult for web companies if the tax authority will deem online advertising companies to have a permanent establishment in Italy for tax purposes which would oblige them to pay also Italian corporation taxes as it was prescribed in an earlier version of the law proposal.
The law (if not previously challenged as it risks to be) will have the effect to allow a stricter monitoring by Italian tax authorities on VAT payments due to the reporting obligations applicable to entities holding an Italian VAT number. Italian tax authorities might collect more information on revenues generated by foreign online companies in Italy that could be used as part of investigations which as previously mentioned are becoming more and more frequent and aggressive against foreign online companies. This is likely to lead them to a more detailed tax assessment of their presence in the country to reduce the risks that a permanent establishment for tax purposes is challenged to companies that usually have an affiliate entity in Italy, but offer their services through companies based abroad in countries with a more favorable tax regime.
Following the publication of this article the coming into force of the above mentioned provisions has been postponed to the 1st of July 2014, but new tax transfer pricing provisions for foreign companies that have Italian subsidiaries have been introduced with immediate effect.
We will review the developments of the matter, but in the meantime feel free to contact me, Giulio Coraggio (firstname.lastname@example.org), to discuss. Also follow us on Google+, in our IPTitaly group on LinkedIn and on Twitter.