Global Tax Alert | 27 April 2015

Italy considers introduction of tax on digital activities

  • Share

Executive summary

Based on news published in the Italian press on 24 April 2015, the Italian Government is considering the introduction of a 25% withholding tax on the virtual presence of foreign multinationals selling into the Italian market without the presence of a physical structure falling within the traditional definition of permanent establishment (PE).

The new tax would be introduced in June 2015 as part of a second phase of a major tax reform currently in progress.1

Detailed discussion

The Italian Government is reportedly working on the introduction of a 25% withholding tax to be levied by banks and financial intermediaries on payments to foreign multinationals in connection with transactions with Italian customers.

The plan is based on one of the options identified by the Organisation for Economic Co-operation and Development (OECD) to address the challenges raised by the digital economy in terms of nexus and reduced need of physical presence, critical value of data and characterization of income within the traditional categories.2 Such withholding tax would address concerns that multinationals maintain substantial economic activity in a market without being taxable therein under current PE rules, due to the lack of physical presence at the local level.

The goal of the Italian Government would be to introduce the new tax in June 2015 as part of a second phase of a major tax reform to be implemented on the basis of an empowering law approved by the Parliament on 27 February 2014.

The withholding tax would be applied on the assumption of the presence of a virtual PE based on the concept of a significant digital presence and would be triggered when the “presence” exceeds, in terms of payments, certain thresholds which would be currently identified at a level of €1 million within a period of six months.

The rate would increase to 30%, in line with the domestic withholding tax currently provided for foreign self-employments, in the unlikely scenario that payments are received by foreign individuals.

Mechanisms to avoid any double taxation in connection with taxes already paid in Italy should be provided.

The new withholding tax would not apply in the case that the foreign entity discloses a PE in Italy.


1. See EY Global Tax Alert, Italy issues draft legislation for major tax reform, dated 27 April 2015.

2. As discussed by the OECD in its interim report of 16 September 2014 on Addressing the tax challenge of digital economy in connection with Action 1 of its Action Plan on Base Erosion and Profit Shifting (BEPS).

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

Studio Legale Tributario in association with Ernst & Young, Milan
  • Domenico Borzumato
    +39 02 851 4503
  • Marco Magenta
    +39 02 851 4529
Studio Legale Tributario in association with Ernst & Young, Rome
  • Emiliano Zanotti
    +39 06 855 67383
Studio Legale Tributario in association with Ernst & Young, Bologna
  • Mario Ferrol
    +39 051 278 434
Ernst & Young LLP, Italian Tax Desk, New York
  • Simone De Giovanni
    +1 212 773 2351
  • Annalisa Vergati
    +1 212 773 7773

EYG no. CM5395