Italy and France push new Google and Facebook taxes

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29 December 2013

In the past week Italy and France have proposed new digital taxes in an attempt to capture revenues from non-resident online service providers such as Google, Facebook and YouTube.

Italy – passed into law (confirmed Fri 27 Dec 2013 to launch 1 Jul 2014) a new tax designed to subject Google advertising income to Italian corporation tax for the first time.  This measure is in breach of the EU’s Single Market regime.

France – wants to extend its 1% cultural support levy to online broadcasters

The moves come ahead of separate reviews by the OECD / G20 BEPS initiative and the EC on digital taxation.

Italy extends corporation tax net

Italy passed into law on 20th Dec 2013 a measure to compel online search engines to book all their advertising to Italian consumers through Italian-resident companies (with a resident VAT number).  This would mean the income from the ad’s would become subject to Italian corporation tax.  At present, search engines may sell ad space through their non-Italian entities, and therefore lawfully avoid local corporation tax. 

The change to the Italian legislation is in contravention of the European Union’s Single Market regime, which permits the provision of services between member states without the requirement for a local subsidiary (or permanent establishment) and therefore no liability to corporation tax.

It was confirmed on Friday 27 December that this law would become effective on 1 July 2014.

France aims to extend culture levy to global web

Following a failure earlier in 2013 to introduce a digital data tax on global internet companies, France has proposed an alternative measure to raise taxes from international groups.  On 23 December, the Conseil Supérieur de l’Adiovisuel proposed extending its 1% French cultural support tax on broadcasters and cinemas to include online broadcasters which produce original content in France.  The would include Facebook, Google and YouTube.  The CSA also has the power to include the providers of smart phones and tablets sold in France.

OECD and EC look to recast digital taxes

The OECD’s BEPS tax review, in conjunction with the G20, is scheduled to produce a set of recommendations in Sep 2014 on new ways to tax non-resident digital income.  The EC has set-up a separate expert commission on digital taxation, and is due to report in Jun 2014.

These new measures highlight EU member states’ frustrations with the current international tax regime.  It will put pressure on the OECD and EC to accelerate their rethink of global fiscal structures and how they can better capture revenues from digital services.

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