Italy Calls for Confidence Vote to Include ‘Web Tax’ in 2018 Budget

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By Eric J. Lyman

The Italian government is calling for a confidence vote on measures including allowing digital multinational companies to strike a preventative tax agreement with officials in an effort to include a “web tax” in its 2018 budget.

The terms would apply to digital companies not headquartered in Italy having:

  •  at least 1 billion euros ($1.1 billion) in global revenue, and
  •  sales in Italy worth at least 50 million euros ($55 million).

The strategy is a gamble for the Italian government, as losing a confidence vote requires the prime minister to resign from office. But political analysts told Bloomberg BNA the measures are likely to gain parliamentary approval by a comfortable margin.

The change comes as Italy is investigating several large digital companies for tax issues. Earlier this month, the government settled a 306 million-euro ($337 million) tax probe into Alphabet Inc.’s Google, and a few days earlier it opened an investigation into the tax obligations of Amazon.com Inc. reportedly worth 130 million euros ($143 million). In late 2015, Italy had its largest-ever tax settlement when the Italian subsidiary of Apple, Inc. agreed to pay 318 million euros ($350 million) in back taxes.

Expanded PE Definition

If passed, the web tax measure would expand the definition of what constitutes a permanent establishment—essentially, a taxable presence in a country arising from activities carried out there on behalf of a foreign enterprise—and make it easier to treat digital companies like their brick-and-mortar competitors from a tax perspective. It would also allow companies to negotiate tax terms with the government in advance.

“The main advantage of a law like this is that it creates a certainty in terms of what these multinational web companies can expect,” Francesco Daveri, a political economy professor with the Sacro Cuore Catholic University in Piacenza, told Bloomberg BNA.

The rules themselves are not surprising; the proposal today is mostly in line with proposals released May 8. What is surprising is the weight the government is putting behind it.

“It is a bit unusual to use a confidence vote on a budget measure in May,” said Gian Franco Gallo, a political affairs analyst with ABS Securities in Milan. “But there’s no reason to think it won’t pass.”

Other political analysts agreed.

The final budget is required by law to be passed by the end of the year, and in this case, the 2018 budget is expected to come up for a final vote in November.

If the measure is included in the 2018 budget as expected, it will take effect Jan. 1, 2018.

To contact the reporter on this story: Eric J. Lyman in Rome at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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