An Italian tax claim against Facebook’s parent company, Meta, has been referred to the EU Commission’s VAT committee for evaluation, according to three sources with direct knowledge of the matter. This is a test case for how the tech sector is taxed. Meta, which also owns Instagram, WhatsApp and Oculus platforms, faces a potential tax bill of around €870 million ($954 million) in Italy after Milan prosecutors launched an investigation into the company based on a tax police audit.
While this may be a modest sum for a company that generated over $32 billion in revenue last year, the case could have much wider implications, as it revolves around the way Meta provides access to its services. The audit, conducted by Italy’s Guardia di Finanza (GdF) police, claimed that Meta’s user registrations could be considered a taxable transaction as they implied the non-monetary exchange of a membership account for the user’s personal data.
Meta has repeatedly stated that it strongly disagrees with the idea that providing access to online platforms to users should be subject to sales tax (VAT). According to the three sources, because of the sensitivity and unprecedented nature of the issue, Italy’s tax agency sent a request for a technical evaluation to the European Commission’s VAT committee via the Italian government’s Department of Finance in September. The requested opinion concerned the VAT treatment of online services provided by the social network in exchange for its users’ personal data.
The EU VAT committee’s assessment, the timing of which is unknown, will be non-binding. But a negative decision could lead the ministry and the tax agency to stop challenging Meta, and ultimately to drop the criminal investigation by Milan prosecutors as well, the sources said. Notably, VAT is a harmonized tax at the European level, so if it were deemed applicable in Italy, it would automatically be applicable to all other EU member states. Moreover, such tax treatment could be extended across the 27-nation EU to all other multinational Internet platforms that use the free access mode in exchange for user data.
A European Commission spokesperson declined to comment directly on the issue, noting that the VAT committee was an independent advisory group. The Italian tax agency declined to comment on the issue, and Meta did not immediately respond to a request for comment. The GdF police and tax agency calculated that Meta would have to pay approximately €220 million in sales tax locally in 2021, and that the VAT due for the period 2015 to 2021 would be a total of €870 million. Italy has pursued other tech companies over taxation.
Property rental platform Airbnb said earlier this month that it would pay €576 million to the Italian Revenue Agency to settle outstanding income tax obligations for 2017-2021. ($1 = €0.9122)