Global Tax Alert | 10 March 2014

Italy partially repeals "Web Tax" rules

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Executive summary

With Law Decree no. 16 of 6 March 2014 (in force as of the same day), the Italian Government repealed part of the recently introduced tax rules concerning certain Digital Economy activities generally referred to as “Web Tax.” The Parliament now has sixty days to convert the Law Decree into a final ordinary Law.

Specifically, the Government repealed Article 1, paragraph 33, of the 2014 Stability Law which, among other things, required foreign groups selling advertising services and sponsored links on-line to obtain an Italian VAT registration in the case of sales to Italian companies.


The 2014 Stability Law provided important changes for groups involved in certain on-line businesses.1

From a VAT perspective, the new legislation (Article 1, paragraphs 33 of the 2014 Stability Law) provided that, starting as of 1 July 2014, advertising services and sponsored links purchased on-line, as well as on-line advertising spaces and sponsored links appearing in the results pages of search engines (search advertising services) viewable in the Italian territory, had to be purchased exclusively from entities holding an Italian VAT registration.

The enacted provisions appeared immediately questionable from a European Law perspective as they seemed to infringe the freedom of establishment principle as well as Article 196 of Directive 2006/112 regarding the person liable to pay VAT on cross border B2B (business-to -business) services.

In addition to incompatibility issues with EU principles, commentators started questioning the actual rationale of the new rule and highlighted its lack of clarity. They also questioned the purpose of the VAT registration since VAT is generally neutral for businesses (i.e., broadly speaking, sellers charge VAT to buyers and buyers recover the VAT by deduction or refund claim - VAT is instead charged to and paid by final consumers who have no right to deduct/refund). Therefore, some commentators thought that the purpose of this rule was to make the foreign providers more visible to the Italian tax authorities who could better monitor them for income tax assessments (e.g., assessing potential permanent establishments). In addition, it was not clear whether VAT registration was intended as the mere obtainment of a VAT number in Italy, or whether it implied that the qualifying foreign company needed to register a branch in Italy. Had the obligation implied the registration of a branch, this could have in principle raised income tax liability issues (i.e., whether the company should also be attributed income tax profits).

Due to this controversy with the mentioned Law Decree, the Government has now entirely repealed the above rules with the apparent aim of reconsidering other types of “Web Taxation” in the future and in a more coordinated way with the other EU countries.

From a transfer pricing perspective, the new rules (Article 1, paragraph 177 of the 2014 Stability Law) provide that entities involved in the collection of on-line advertisement and in related auxiliary services on behalf of foreign group companies must use profit level indicators other than those applicable to the costs incurred in the conduct of their business unless they reach an APA (Advanced Pricing Agreement) with the Italian Revenue.

Moreover, for the purchase of on-line advertising services and related ancillary services, the new legislation (Article 1, paragraph 178 of the 2014 Stability Law) states that it is mandatory to use bank or postal accounts or any other means of payment allowing full traceability of transactions, including the VAT identification number of the supplier (as a consequence of the repeal this should supposedly apply only to Italian established suppliers). The Revenue Agency will define the pattern of transmission of the information required.

These rules concerning transfer pricing and the payment of the relevant consideration (mentioned paragraphs 177 and 178) remain valid and fully in force.


1. See EY Global Alert, Italy issues new laws with important transfer pricing and VAT implications, of 3 January 2014.

For additional information with respect to this Alert, please contact the following:

Studio Legale Tributario in association with Ernst & Young, Milan
  • Davide Bergami
    +39 02 851 4409
  • Massimo Bellini
    +39 02 851 4428
  • Silvia Confalonieri
    +39 02 851 4559
  • Simonetta La Grutta
    +39 02 851 4586
  • Domenico Borzumato
    +39 02 851 4503
  • Marco Magenta
    +39 02 851 4529
Studio Legale Tributario in association with Ernst & Young, Bologna
  • Mario Ferrol
    +39 335 122 9904
Studio Legale Tributario in association with Ernst & Young, Rome
  • Nicoletta Mazzitelli
    +39 06 85567 323
  • Livio Zallo
    +39 06 8556 353
Ernst & Young LLP, US VAT Practice, San Francisco
  • Anne Freden
    +1 415 894 8732
Ernst & Young LLP, US VAT Practice, New York
  • Steve Patton
    +1 212 773 2827
  • Luigi Bucceri
    +1 212 773 5346
Ernst & Young LLP, Italian Tax Desk, New York
  • Emiliano Zanotti
    +1 212 773 6516
  • Andrea De Nigris
    +1 212 773 0478
  • Fabio Rousset
    +1 212 773 9302

EYG no. CM4238