Italy Misses the January 1, 2015 Deadline for Enacting New Place of Supply Rules for Digital Services

European Union Member States were required to implement new legislation by January 1, 2015 transposing an EU Directive on the place of supply of digital services into domestic law.

Bravo, and bravissimo to the 27 EU Member States who met the deadline. 

The only Member State to have missed it is ... Italy. 

Draft legislation approved by the Italian government is currently being reviewed by the Special Committee of the Italian Parliament for final approval. It is anticipated that the legislation will enter into effect within the next month. 

The new rules address the place of supply of sales to final customers of digital services such as e-books or digitally supplied software. Under the pre-2015 rules, the place of supply of these services was the Member State of the supplier. This gave suppliers a strong incentive to sell from a base in a low-VAT jurisdiction such as Luxembourg. Under the new rules, the place of supply of these services is the Member State of the recipient. 

So what are the implications of Italy's failure to implement the new rules.

For EU suppliers selling digital services to Italian customers – not much. These services will still be subject to VAT in Italy under the EU Directive. However, if an Italian supplier makes a supply to a customer in another EU Member State, he could potentially be subject to double tax – in Italy (under Italian domestic law, with a standard rate of 22 percent), and in the Member State of the EU recipient (in accordance with the EU Directive). 

In practice, however, it appears that Italy is unlikely to subject its digital suppliers to an extra layer of Italian VAT.

Grazie mille, Signore.

For more information, see Bloomberg BNA’s VAT Navigator and the January 2015 edition of the Indirect Taxes Journal for Mariacristina Scarpa’s article, Italy: Place of Supply Rules and the Consequences of Missed Deadlines.

Access even more in-depth analysis and expertise with a free trial to the Premier International Tax Library.

By Joanna Norland, Technical Editor, VAT Navigator