EU Commission examines Italy’s tax case against Meta

An Italian tax claim against Facebook parent Meta has been escalated to the EU Commission’s VAT committee for evaluation, three sources with direct knowledge of the matter told Reuters, in a test case for how the tech sector is taxed.

The U.S. corporation, which also owns the Instagram, WhatsApp and Oculus platforms, faces a potential tax bill of around 870 million euros ($954 million) in Italy after Milan prosecutors launched an investigation into the company on the basis of a tax police audit.

Although a modest sum for a company that brought in more than $32 billion in revenue last year, the case could have much wider ramifications as it hinges on the way that Meta provides access to services.

The audit, devised and carried out by Italy’s Guardia di Finanza (GdF) police, claimed Meta user registrations could be seen as 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).

The three sources said that 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 return for the provision of its users’ personal data, the sources added.

The EU VAT committee’s assessment, the timing of which is unknown, will be non-binding, but a “No” from it could push 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.

However, VAT is a harmonised tax at European level, so if it were deemed to apply in Italy, it would automatically be applicable to all other EU member states.

Also, such tax treatment could be extended in 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 VAT Committee regularly deals with issues raised by Member States and both the outcome and the timeframe depend on the agenda,” the spokesperson said.

The Italian tax agency declined to comment on the issue.

Meta did not immediately respond to a request for comment.

The GdF police and tax agency calculated a model under which Meta would have had to pay around 220 million euros of sales tax locally in 2021. They also calculated that the VAT due for the period 2015 to 2021 would be a total of 870 million euros.

Italy has pursued other tech companies over taxation. Property rental platform Airbnb said this month it would pay 576 million euros to the Italian Revenue Agency to settle outstanding income tax obligations for 2017-2021. ($1 = 0.9122 euros)=