Edited by International Tax Services team
In brief
Starting from January 1, 2025, Article 1, paragraph 21 of Law no. 207 of December 30, 2024 (“2025 Budget Law”), removes the 5.5 million digital services revenues threshold. Accordingly, both residents and non-residents entities with (even consolidated) revenues (anywhere realized) exceeding 750 million euros may be subject to the Italian digital services tax (“IDST”) in Italy at a rate of 3% for any consideration derived for the provision of digital services (such as channelling or hosting targeted advertising, intermediation services of goods and services (e.g., marketplace), social networks, and data transmission) at Italian users through digital interfaces (websites, apps, etc.).
Furthermore, while previously the payment of the IDST due for the reference calendar year was postponed and unified to May 16 of the following calendar year, the 2025 Budget Law introduces an advance payment due by November 30 for an amount of 30% of the IDST due for the calendar year preceding the reference calendar year, and the remaining balance by May 16 of the calendar year following the reference calendar year. On the other hand, the deadline of June 30 of the following calendar year for submitting the IDST Return remains unchanged.
In 2025, therefore, there is a double deadline for the IDST payment: (i) for the calendar year 2024, the IDST is due by May 16, and (ii) for the calendar year 2025, the IDST advance payment is due by November 30, 2025, equalling to the 30% of the IDST due for the calendar year 2024 (the IDST balance is due by May 16, 2026).
The removal of the digital revenue threshold of 5.5 million euros clearly significantly increases the number of the digital business (e.g., social media, marketplaces, transmission of data service providers, targeted advertising services provider etc.) exposed to IDST. In this regard, any digital business that in past years did not pay enough attention to the IDST because their digital services revenue amounts were below the 5.5 million euros threshold are now called upon to carefully assess their operations as they could possibly be subject to the IDST.
In detail
The IDST regulation in summary
IDST is governed by art. 1 co. 35 et seq. of Law No. 145/2018 (“2019 Budget Law”) and is supplemented by the provisions and clarifications contained in the Revenue Agency provision 15.1.2021 no. 13185 and in the Revenue Agency circular no. 3/2021, respectively. The IDST is inspired by the European Union proposal of directive COM (2018)/148.
The IDST applies from 2020 onward with a rate of 3 percent to target revenues from digital services that taxable persons derive through digital interfaces (any website, application, etc.) from Italian users, that is, the monetization of the contribution that users provide to the value creation of the digital service provider.
The taxable persons
IDST’s Taxable persons include companies as well as entities and individuals, whether they are residents or non-residents in the Italian State – and in the latter case, regardless of the existence of a permanent Italian establishment, engaging in commercial activities and that, on a standalone basis or at the group level, derive revenues no less than 750 million euros. Starting from January 1, 2025, the additional threshold of 5.5 million euros specifically related to digital services revenues has been removed.
As also clarified by Italian Tax Administration, to determine the 750-million-euro threshold, it is necessary to take into account:
- all revenues, anywhere realized and of any nature (thus including revenues from activities anywhere conducted anywhere as well as those lacking a digital nature);
- in the case of a “group”, all revenues generated by entities included within the consolidation perimeter (fully or using the pro-rata method, excluding entities consolidated using the equity method), regardless of the nature of the activity carried out;
- the positive items of income resulting from the consolidated financial statement (or in the absence, from the official financial statement drafted on a standalone basis) closed in the year previous (e.g., 2024) to the one subject to taxation (e.g., 2025), according to the accrual principle and prepared according to correct accounting principles (IAS/IFRS or others national reporting system with outcomes equivalent and comparable to those resulting from the adoption of IFRS, such as the General Accepted Accounting Principle – “GAAP” of Australia, Canada, Hong Kong (China), Japan, New Zealand, China, India, Korea, Singapore, and the United States).
In this regard, Circular 3/2021 clarifies that where, based on the correct application of accounting principles, positive items of income are represented in the financial statements net of costs, the relevant revenues should be considered “net”. By way of example, this is the case for entities performing intermediation functions which, according to IFRS15 or Italian GAAP34, represent revenues in the financial statements, namely the commission, net of the related costs;
- even the items of income derived from extraordinary operations and the capital gains from the sale of capital assets;
- for banks and other credit and financial entities, the value of the intermediation margin shown in the income statement, increased by the item “interest expenses and similar charges” and “commission expenses”.
On the other hand, payments from other entities belonging to the “group” and considered as dividends in the payer jurisdiction shall not be taken into account.
In-scope digital services
A Taxable person falls within the IDST scope in case it provides (one or more of) the following digital services:
- channelling (intermediation and/or hosting) on any digital interface (e.g., website, platforms, apps, etc.) advertising targeted at users;
- making available a multisided digital interface that allows users to connect and interact with each other, also to facilitate the direct supply of goods or services (e.g., all marketplaces of goods and services as well as social networks);
- transmission of data collected from users and generated using a digital interface.
However, some digital services are excluded from the scope of the IDST due to explicit regulatory provisions (e.g., direct supply of goods and services provided in the context of a digital intermediation service, supply of goods or services ordered through the supplier’s website of those goods or services, when the supplier does not act as an intermediary, etc.). Additionally, intra-group digital services (under certain conditions) are excluded from the IDST taxable base.
Consequently, it is appropriate to identify and analyse all revenue streams arising in the digital operators’ business model that provide a digital service, to detect any revenue that can be excluded from the IDST tax base (for example, because they pertain to services excluded from the IDST , to ancillary services to excluded services, and/or because they are rendered within a group), also considering the need to avoid double or multiple taxation effects (the so-called cascading effects, arising when the same digital revenue is subject to IDST in the hands of more than one taxable person due to the fact that several operators are often involved in the provision of a digital service).
The relevant tax period and deadlines
The tax period for the digital services tax is the calendar year.
According to art. 1 para. 42 of the 2019 Budget Law (as amended by the 2025 Budget Law), taxable persons must pay:
- by November 30th of the reference calendar year, an advance payment equal to 30% of the IDST amount due for the previous calendar year;
- by May 16th of the following calendar year, the balance of the IDST due for the reference calendar year.
Additionally, according to art. 1 sec. 42 of the 2019 Budget Law, IDST taxable persons must submit the related IDST Return by June 30th of the calendar year following the reference calendar year.
The provisions regarding Italian value-added tax (VAT) apply for the purposes of assessment, penalties, and collection of the IDST. Therefore, should the IDST declaration be filed over the envisaged deadline or omitted, the penalties applicable to VAT are imposed to the taxable person (in case the IDST Declaration is omitted, also criminal penalties are applicable, besides the administrative ones).
Designation for the obligations related to the ISD
In order to comply with identification obligation (for non-resident entities), IDST payment and IDST Declaration obligations as well as for submitting a refund request, resident or non-resident taxable entities belonging to a group can designate another entity, on an optional basis and not according to an “all in-all out” principle (it is not indeed necessary that all group’s entities opt for the designation and/or that all the group’s entities are IDST taxable persons themselves).
IDST, Double Taxation Conventions, and IDST deductibility
According to the clarification provided by the Italian Tax Administration in Circular 3/2021, the IDST is an indirect tax, which means that IDST does not fall within the scope of application of the Conventions against double taxation; however, the IDST can be deducted for the purposes of the Italian corporate income tax (IRES) pursuant to Article 99 of the Italian Income Tax Code, in the fiscal year in which the related payment occurs.
Let’s Talk
For a deeper discussion on the possible implications of the ISD following the removal of the local revenue threshold of 5.5 million, please contact