Italy is demanding the cash from Meta, X (formerly known as Twitter) and LinkedIn in a tax case that could set a wide-reaching precedent across the EU for the technology sector. It is a landmark moment in the long-fought battles over how to tax some of the most successful tech companies.
VAT Claim Details
The Italian tax authorities are seeking significant VAT claims against these US-based technology giants, and few examples illustrate this process. It features €887.6 million from Meta, €12.5 million from X and some €140 million from LinkedIn. The figures represent the total case amounts under investigation, for the periods ranging from 2015 to 2016 to 2021 to 2022, depending on the specific case. However, the tax assessment notice is pertains to years claims are just about to expire, in this case 2015 and 2016.
Basis of the Tax Claim
The crux of this case is how social networks grant access to their platforms. User registrations on platforms such as X, LinkedIn and Meta are considered “taxable transactions,” according to the Italian revenue rates authorities. This perspective is supported by the characterization of the registration as a trade: the user receives a membership account in exchange for their personal information.
Company Responses
Meta said it had “recognized the situation,” adding that it had been working with the authorities as required under E.U. and local laws. The Practice Group also appears to disagree with the argument that access to online platforms can be considered as a supply subject to VAT. A LinkedIn spokesperson said it has no comment to give at the moment. X has not yet responded to requests for comment.
Potential Wider Implications
This case could set a precedent beyond Italy and affect the wider European Union. Because VAT is a harmonised tax across the EU, the attitude the Italian authorities take could force some tech companies to rethink their business models. The decision could reverberate across a variety of businesses that offer free services on their websites in exchange for user data, from airlines to supermarkets to publishing, analysts say.
Next Steps in the Process
Italy has negotiated with the technology companies over tax matters. In February, the company settled and paid €326 million to end a tax claim for 2015 through 2019. This does not occur, however, for Meta, X and LinkedIn, for which no settlement agreement has been reached, and for them, the Revenue Agency has issued a formal assessment notice. This notice is an important step in the prelude to what will likely be a judicial tax fight.
The companies have 60 days to challenge the tax assessment. They may be granted one month more if they request the tax authorities to show a settlement proposal. After that, a few things could happen.
One possibility is that the case is moved to the courts, which would mean a lengthy legal battle. Or, the economy ministry, which oversees the Revenue Agency, could also choose to withdraw its case. This can occur for many reasons, ranging from technical concerns to questions of policy. An alternative would be for the two sides, tax authorities and the groups, to reach an accord on the payment of the first instalments of the disputed annual payments as Italy seeks further guidance from the European Commission, and the cases would then be put on hold in the interim. Such a policy would allow Italy to move in concert with other European nations.
