The Italian Revenue Agency, on January 15, 2021, published the final executive regulation (Regulation) providing guidance on the Italian digital service tax (IDST). The Regulation’s publication follows a public consultation that launched on December 16, 2020 and concluded on December 31 (see December 18 and December 23, 2020 Tax Insights).
Generally, the Regulation remains unchanged from its draft version, other than certain amended concepts that appear to align with the EU proposal. However, Article 2 of the Law Decree n. 3 of January 15, 2021, delays the IDST’s payment due date from February 16, 2021 to March 16, 2021. In addition, the IDST’s tax return filing date is delayed from March 31, 2021 to April 30, 2021 (the delays are also reflected in the Regulation).
While the Regulation clarifies many aspects of the IDST, certain items regarding its interpretation and operation remain unresolved. Since additional time is available before the first IDST payment due date, the Italian Revenue Agency is expected to issue a circular letter (the Guidance) as soon as possible in order to address unresolved issues about the IDST, including (i) in-scope and out-of-scope digital service’s and (ii) criteria for territoriality. In the event taxpayers fall within the IDST’s scope, the Guidance should provide clarity on determining tax liability and avoiding double taxation risk.
The Regulation remains mostly unchanged from the draft version. However, it leaves certain key issues unresolved, including issues regarding (i) identifying and determining relevant ‘intermediation’ activities in the context of the targeted advertising services that may result in undesirable cascading effects of the IDST tax; and (ii) the exact meaning of ‘intermediation,’ which is relevant for digital services involving a multi-sided digital interface. The Regulation is also noteworthy for delaying the IDST’s payment and tax return filing due dates.
Companies interested in identifying the scope of activities and taxable revenues should consider a detailed analysis, especially considering possible cascading effects that could result from applying the IDST to more than one ‘person’ operating in the value chain of the same revenue stream (such as the ‘person’ in charge of placing target advertising and the ‘person’ hosting the target advertising). Alternatively, taxpayers involved in a marketplace business should consider performing a detailed analysis in order to identify in-scope and out-of-scope revenues, especially with respect to cases in which they do not act as an ‘intermediary’ in the provision of goods and services.