Digital Services Tax in Italy

By Giuliana Polacco, Annarita De Carne


Italy has been grappling with the digital economy for some time, trying to identify rules for the taxation of revenues deriving from online transactions. 

With the Budget Law 2019, Parliament approved a provision introducing a DST which never entered into force waiting for a common consensus at OECD level, to avoid unilateral measures. 

However, due to the delay in finding a common global solution, trying to mirror  the French decisions  and needing additional budget, the new Italian Government has implemented  Italian DST with Law December 27, 2019, n. 160. DST is effective starting from January 1st, 2020 without the need to be implemented through a specific Decree (differently from the previous version of the rule). In particular, significant improvements have been brought to the prior version of the DST, including provisions regarding compliance that will allow the immediate application of the law (although it is still indicated that the actual modalities to implement the law are needed through Provisions of the Director of the Revenue Agency).

The revenues deriving from the introduction of DST are expected to be in the range of 600 million euros ($684 million).  

The main features of DST are the following:  

1. DST will apply only to entrepreneurs which, individually or as a group, during an year:

  • Record total worldwide revenues equal to or greater than 750 million euros; and
  • Obtain total revenues from digital services in Italy equal to or greater than 5.5 million euros.

Both foreign and Italian entities will fall within DST when the above parameters are met.

2. Revenues subject to DST include those deriving from advertising services, intermediation and marketplace, and data transmission. “Advertising” refers to the placing of an advertisement(s) on a digital interface, targeting the users of that interface; “intermediation and marketplace” refers to those platforms that offer a multilateral digital interface allowing users to contact and interact with each other and facilitating the direct supply of goods or services; “data transmission” refers to the transmission of data collected by users and generated by the use of a digital interface. 

DST also includes taxation of the transactions carried out in the marketplace, including the intermediation in the sales of goods, while transactions concluded directly with final consumers and pure e-commerce transactions seem to be still out of scope.

On the contrary,  DST does not apply to a number of sectors and related revenues that are specifically listed in the new version of the law, such as direct provision of goods and services both in case of use of intermediary or direct supplies through the website;  revenues deriving from the digital interfaces which offer digital contents, communication and payment services.  DST does not apply also to the supply of financial services provided by financial regulated entities 

3. Intercompany transactions of digital services are excluded from the scope of the tax.

4. Revenues that are subject to taxation are mainly linked to the location of the users of the services (taking into account the IP address). As a result, they are considered taxable if the user of a taxable service is located in Italy in a specific tax period.  Different localization rules are applicable depending on the different type of services. In particular, based on the current wording of the DST legislation: (i) revenues deriving from advertising services shall have to be taxed when they appear on the user's device when the device is used in Italy in that tax period to access a digital interface; (ii) in the case of intermediation or marketplace services, the localization of the user depends on whether the service involves a multilateral digital interface that facilitates the corresponding supply of goods or services directly between users. In the first case, revenues attract taxation in Italy if the user uses a device in Italy in that tax period to access the digital interface and concludes a transaction on that interface during that tax period; if this is not the case, the user is considered located in Italy if he/she has an account for the whole or part of that tax period that allows him/her to access the digital interface and this account has been opened using a device in Italy; (iii) in the case of data transmission, the localization depends on whether the data transmitted was generated by a user who used a device in Italy to access a digital interface during that current tax period or a previous tax period. Revenues do not include the price paid by the user for the purchase of the goods or of the services. 

5. DST will apply at a tax rate of 3 percent based on revenues generated during the tax period. The taxable base is not reduced by any "costs" but is net of value-added tax (“VAT”) and other indirect taxes. There is no indication of whether non-deductible costs include traffic acquisition costs.

6. DST computation is based on the ratio between the total amount of revenues deriving from digital services, wherever realized and those connected with the Italian territory (specific rules apply to each of the different type of revenues) on cash basis.   

7. Payment of DST must be made on the 16th day of March following the relevant fiscal year). A return must be filed within six months after the end of the tax period (i.e. June 30 of the following fiscal year). In case of more than one company belonging to the same Group, the latter will identify the company responsible for all DST fulfillments (payments and declaration).

8. DST is not, in principle, deductible from income (for the application of Corporate Income Tax).

9. Nonresident entities without a permanent establishment in Italy or a VAT number, which in the course of a calendar year fulfill the conditions for the application of DST, must request an identification number for DST purposes from the Italian Revenue Agency. If a nonresident has an affiliate company in Italy, the affiliate is jointly responsible for compliance with the group's DST obligations. 

10. A sunset clause has been included. In particular, Italian DST will be revoked once provision for the taxation of digital services purposes will be adopted at international level.

Please click here to find, a translation of the DST rule in force as of January 1, 2020 (in Italics, the amendments brought by the 2020 Budget Law).