© Reuters. The Meta logo in front of the Facebook, Messenger, Instagram, Whatsapp and Oculus logos. REUTERS/Dado Ruvic/
by Emilio Parodi
MILAN (Reuters) – The dispute between the Revenue Agency and the Irish subsidiary of Meta Platforms is expected by the end of the year, which according to Italy should pay 870 million euros in unpaid VAT from 2015 to 2021.
This was reported by two sources with direct knowledge of the dossier, adding that the dialogue with the company is followed by the “highest levels of the Italian financial administration”, given the sensitivity of the issue which could become a pilot case for the taxation of the whole industrial system of social platforms and the tech sector, at least throughout Europe.
The central point is the initial and founding assumption from which the investigation by the Guardia di Finanza started, which led to the opening of the criminal investigation by the Milan prosecutor’s office for omitted payment of VAT, after the European prosecutor ( EPPO), reported by the Gdf, established that it was up to the Italian magistrates to go ahead.
FREE ACCESS IN DATA CHANGE AS A TAXABLE TRANSACTION?
It is the axiom, that is, that free subscriptions to online platforms should be taxed as commercial transactions in exchange for the transfer of one’s personal data, which have an economic value, given that they can be profiled.
Considering this user-company data “exchange” as an exchange of different goods, and therefore subject to VAT, is the crucial point which according to experts could lead to an epochal change in the tech sector, which would not only concern Meta, which controls the social networks Facebook (NASDAQ:), WhatsApp and Instagram, but all similar companies, and it would not only concern Italy, but, at least, all of Europe, given that VAT is a harmonized European tax.
After the verification of the Gdf and the opening of the criminal investigation, since the beginning of the year we have been in the phase of the so-called “assessment assessment” by the Revenue Agency, the outcome of which will also influence the continuation of the investigation criminal.
THE TAX-COMPANY INTERLOCUTION
At the end of this tax-company “dialogue”, which is expected to be completed by the end of the year, there are two possible outcomes: either the company’s acceptance of the assessment, which will pay the agreed amount (as happened in the past with groups such as Google (NASDAQ:) and Apple (NASDAQ:)) and will accept this tax regime for the future, or contest the findings and initiate a tax litigation.
The latter hypothesis has potential disadvantages both for the State, because it is a process that can generally last even more than a decade, and for the company, because, in the event of a “defeat”, the bill would not be the figure established in the assessment, but the entire amount of taxes due, plus late payment interest and, above all, penalties, which could double the amount.
META: FREE REGISTRATION NOT SUBJECT TO VAT
Meta said in a note that it “strongly disagrees with the idea that access by users to online platforms should be subject to the payment of VAT”, adding that the company pays all the taxes required in each of the countries where it operates and is willing to cooperate fully with the authorities.
In essence, the company does not believe that there is a direct link between the free registration of users on its social platforms and the transfer of user data, and therefore without this direct link, it believes it is not possible to request payment of the VAT.
THE COUNCIL OF STATE
At the basis of the approach supported by the Gdf is a sentence of the Council of State, the 2631 of 2021, which did not deal with VAT but with an alleged deceptive commercial practice, in which the judges established that these operations (access to the platform in exchange for the transfer of personal data) were not free but rather expensive.
GDF SETUP AND DIRECT LINK
To clarify the point, Reuters turned to Sergio Sirabella, an international tax expert, technical consultant of the prosecutors for cases of international tax evasion, professor at the Financial Police School of the Guardia di Finanza.
The central point is the direct link between the two actions.
“To better understand, it is appropriate to recall the orientation of the financial administration, the Cassation, the European Court of Justice and the VAT Committee of the European Commission”, Sirabella begins.
“According to the European Court of Justice in judgments C-432/15m, C-246/08 and C-16/93, a provision of services can be considered taxable only in cases where there is a direct link between the service provided and the value received “.
The VAT committee of the EU Commission, in a 2018 working paper, stated that the supply of an IT service without monetary consideration, with the supplier who could use his customer’s personal data, would not constitute a transaction subject to VAT because there would be no connection between the service provided and the consideration received.
“Should instead the existence of a sufficient direct link between the IT services provided and the data received from the customer be established, there would be a taxable transaction for VAT purposes, and, in this case, the taxable base would be made up of the cost incurred by the supplier for the provision of customer service”.
The Cassation, continues the international tax expert, in two sentences, one of 2016 and one of 2019, established with the first, that the real free transfers are made only when a service does not correspond to a consideration, thus excluding exchanges. With the second sentence, it sanctioned that in order to qualify a transaction as subject to VAT, there must be a legal relationship between the provider and the recipient in which there is an exchange of reciprocal services and the compensation received by the provider is the actual value of the service provided to the recipient.
HOW A DIRECT CONNECTION SHOULD BE
“If the Guardia di Finanza was able to demonstrate the link between the two services as the access service provided to users by Facebook varied in terms of usable functions on the platform depending on the quality and quantity of data provided by users, such operations would qualify for consideration, and therefore subject to VAT”, explained Sirabella.
POTENTIAL CONSEQUENCES FOR ITALY AND EUROPE
“The direct consequences not only for Italy but for Europe, are that this finding of the Gdf could be objected to by all the companies that provide similar services on the Web, since VAT is a Community standard implemented by the 27 EU countries ”
IMPACTS ON THE DIGITAL SECTOR
“If this approach is successful, the entire industrial sector of digital platforms and the tech giants will have to review the methods of access to data by users to avoid falling into the taxable situation for VAT purposes”, he concluded.
(edited by Gianluca Semeraro)