Italy – Revenue Agency vs US BIG tech

The Italian Revenue Agency has initiated one of the major tax disputes against US big tech this decade. Based on its preliminary VAT reviews, it has issued VAT demands to Meta, X (formerly Twitter), and LinkedIn for a combined value of approximately one billion EUR. To be more precise, it expects VAT payments of EUR 900 million from Meta, EUR 140 million from LinkedIn, and EUR 12.5 million from X. 

The contention is based on the Revenue Agency’s claim that the nature of the exchange services between the platform and the user cannot be treated as a tax-exempt transaction but rather as a VATable one. This trade is based on the e-services the platform provides to the user in exchange for the user’s data.

Regulatory Scope 

The claim of the Revenue Agency that the digital services offered by the platforms mentioned above cannot be treated as tax-exempt (the exchange of the user’s data for the platforms’ e-services), but rather should be treated as taxable transactions subject to the VAT rate of 22%. 

The Agency considers the provisions of Article 11 of the VAT Law, which states that exchanges of intangible assets, in the disputed case, the access to services for data, should be taxable. The claims of the tax experts from the Revenue Agency aren’t focusing much on trying to explain whether the “shared data” in this case has a value, but rather that this value is “paid” with an e-service. 

The technical expert report from the public prosecutor’s office has been added to enhance the trustworthiness of the submitted notifications. The report indicates the transparent connection between the quality and quantity of the data submitted by the user and the quality of the feed and personalization of the ads the user “receives.” 

Simply put, the user contributes to increasing the precision of the platform’s operative algorithm and, in return, receives more personalized services. 

Representatives of Meta reject the Revenue’s claim, considering that it isn’t possible to attach a determinable value to the services the user provides. Due to the case’s complexity, the Revenue Agency has asked the EU Commission VAT expert group to review it and share its opinion. 

Even though the opinion isn’t binding, it could add meaningful value in defining the path to be followed by respective state authorities.

Next Steps 

Meta, X, and LinkedIn representatives should decide within the prescribed period whether to reject Revenue’s claims and fight them in court or try to reach some “sort” of settlement, as was previously the case with some other platforms in similar disputes. 

It should also be considered that the course of this dispute could be influenced by the present “unfriendly” climate between the EU and the US regarding digital services tax, import tariffs, and the Member States’ approach towards US big tech. 

The effects of this dispute could set a major precedent for expanding the scope of taxability for the exchanges of intangible assets. If the Revenue Agency’s move, initiated by the tax notification to the respective digital platforms, ends with introducing the new tax provisions, it could significantly reshape the digital economy’s operative business models.

The possible implications of the dispute aren’t ending “merely” with the VAT liability of the notified digital platforms; they extend much more than that. The effects will extend to the digital privacy rules, possibly revisiting the GDPR rules and regulations, and even extend the scope into other subsectors of the digital economy.