Three people with direct knowledge of the situation told Reuters that an Italian tax claim against Facebook parent company Meta (META.O.) has been forwarded to the EU Commission’s VAT committee for review. This is a test case for the taxation of the digital industry.
The American firm, which also controls the platforms for Instagram, WhatsApp, and Oculus, may owe the Italian government around 870 million euros ($954 million) in taxes due to an inquiry into the business that Milan prosecutors opened based on a tax police audit.
Even though it’s a small amount for a business with over $32 billion in sales every year, the lawsuit might have far more significant effects because of how Meta grants access to services.
The audit, which the Italian police agency Guardia di Finanza (GdF) designed and carried out, claims that Meta user registrations may qualify as taxable transactions because they involve the non-monetary exchange of a membership account for the user’s personal information.
Meta has made it clear time and time again that it is vehemently opposed to the notion that customers should be charged sales tax (VAT) for using its online services.
According to the three sources, Italy’s tax agency requested a technical study in September from the European Commission’s VAT committee through the Italian government’s Department of Finance, given the unique and delicate nature of the matter.
The sources also stated that the requested opinion related to the VAT treatment of online services that the social network provided in exchange for members’ data.
Although the timeframe of the EU VAT committee’s evaluation is uncertain, the sources stated that a “No” from the committee might pressure the ministry and the tax agency to cease their legal challenges against Meta and, eventually, to end the Milan prosecutors’ criminal probe.
Nonetheless, as VAT is a unified tax at the European level, all other EU members would likewise be subject to it if it were determined to be applicable in Italy.
Additionally, any other multinational Internet platforms operating in the 27-nation EU that offer free access in return for user data might also be subject to the same tax regime.
A spokesman for the European Commission declined to address the matter immediately, pointing out that the VAT committee was a separate advisory body.
“The VAT Committee regularly deals with issues raised by Member States and both the outcome and the timeframe depend on the agenda,” a spokeswoman stated.
The Italian tax authority remained silent on the matter. A request for comment from Meta was not immediately answered.
The GdF police and tax department created a scenario in which Meta would have had to pay close to 220 million euros in local sales tax in 2021. They also estimated that 870 million euros would be the total VAT owed between 2015 and 2021.
Regarding taxes, Italy has targeted other tech businesses. Airbnb, a platform for short-term rentals, said this month that it would satisfy its overdue income tax liabilities for 2017 through 2021 with the Italian Revenue Agency by paying 576 million euros. One dollar is equal to 0.9122 euros.
