Italy Proposes Removal of Digital Service Tax Thresholds in 2025 Finance Bill

October 23, 2024

In 2019, the Italian government introduced a 3% Digital Services Tax (DST) on revenue generated by digital companies through Internet transactions. To fall under the scope of the DST, digital companies must make sales of a minimum of EUR 750 million globally and a minimum of EUR 5.5 million in Italy.

Due to the DST taxability rules, the most prominent global digital suppliers paid hundreds of millions in taxes to the Italian Tax Agency in the last five years. That might change with the newly proposed budget for 2025.

Proposed Changes and Its Impact

Italian Deputy Finance Minister Maurizio Leo announced that the budgetary plan 2025 includes a proposal to remove the so-called “web tax” or DST. More precisely, the proposal aims to remove both the global and national threshold related to the DST.

The impact of this decision must be reviewed from a few different perspectives.

The first one is the Italian perspective, where the reasons for such a decision can be found in the goals presented in the 2025 Budget plan. With the removal of the threshold, more companies will become subject to DST, which means more revenue in the state budget from taxes.

However, if this intention is carried out, there are other implications. Some of the biggest companies in the world, such as Meta, Google, or Amazon, would face additional financial burdens in Italy. Since all of them are US companies, the US government has announced possible countermeasures if this happens.

Conclusion

The budgetary plan for fiscal year 2025 is still being reviewed and is subject to debates and changes. Until the Italian Parliament gives its final word and votes on all proposed measures and policies, it remains unclear what the final decision on this proposal will be.

In any case, Italy seems determined to increase state budget revenue, and removing the DST threshold is one way to achieve this. Other options include increasing the tax rate on capital gains from cryptocurrency from 26% to 42%.

Source: Reuters

What is Italy's Digital Services Tax (DST)?

Italy's Digital Services Tax, introduced in 2019, imposes a 3% levy on revenues generated by digital companies from internet transactions. To be subject to this tax, companies must have global revenues of at least €750 million and Italian revenues of at least €5.5 million.

What changes are proposed in the 2025 Finance Bill regarding the DST?

The 2025 Finance Bill proposes eliminating both the global and national revenue thresholds for the DST. This means that any digital company, regardless of size, would be subject to the tax if they generate revenue through internet transactions in Italy.

How might removing the DST thresholds impact businesses?

Removing the thresholds would expand the tax's applicability to a broader range of companies, including small and medium-sized enterprises (SMEs). While this could increase tax revenues for Italy, it may also impose additional financial burdens on smaller businesses that were previously exempt.

What has been the response from the United States regarding Italy's DST?

The United States has expressed concerns that Italy's DST disproportionately affects American tech giants like Meta, Google, and Amazon. U.S. officials have urged Italy to repeal the tax, warning of potential retaliatory tariffs if the tax is perceived as discriminatory against U.S. companies.

Are there differing opinions within Italy about the proposed DST changes?

Yes, there is internal debate within Italy's ruling coalition. Some lawmakers support maintaining the revenue thresholds to focus the tax on large multinational corporations, while others advocate for their removal to broaden the tax base. This divergence reflects differing priorities regarding tax policy and economic impact.

What are the next steps for the proposed DST changes in Italy?

The proposed changes are part of the 2025 Finance Bill, which is currently under parliamentary review. The Italian Parliament will debate and vote on the proposed measures. The final decision will determine whether the DST thresholds are removed as planned.

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