Italy takes aim at tax-dodging tech giants

Italy's move is likely to exacerbate trade tensions between the United States and Europe. Photo credit: Getty

Italy started to implement a 3 percent tax on digital companies, including US tech giants, starting on January 1, 2020, a move that could draw threats of retaliation from Washington.

The new tax, passed by Italy's Parliament in late December, is applied to tech companies with annual global revenues worth at least €750 million or digital services in Italy exceeding €5.5 million euros. The levy will oblige companies such as Facebook, Google and Amazon to pay a three-percent levy on internet transactions.

The Italian scheme is expected to yield about €600 million a year, as Rome tries to find alternative revenues that will allow it to avoid a scheduled increase in sales tax.

Italy's move is likely to exacerbate trade tensions between the United States and Europe and encounter a retaliation measure from the US side. In 2019, after France decided to levy a 3 percent digital tax, the United States, which has a number of world-renowned digital-tech companies, immediately announced that it would impose retaliatory tariffs of up to 100 percent on French wines, cheese and other products exported to the United States.

Francesco Di Ciommo, a professor of the Department of Business and Management at Luiss University, said for many years, multinational tech giants from the United States have obtained considerable benefits by setting up subsidiary companies in low-tax European countries such as Ireland and using tax loopholes there to transfer profits.

"Over the past 20 years, we have seen the European Union has been promoting its political and economic integration but failed to form a tariff union, which is also an important reason behind its weak performance. More crushing still, some European Union members made profits from this. These countries, like Ireland, the Netherlands and Luxembourg, provided huge tax preferences for multinational tech giants," he said.

Ciommo believes Italy's move to impose the digital tax following France's step will complicate the process of formulating international rules for digital tax, and will stalemate negotiations between the US and Europe on this issue. For Italy, the final result is not worth the money.

"If Italian products are hit by US retaliation tariffs, the county's exports will be directly affected. Therefore, to levy the digital tax will lead to more loss than gain by doing a cost-benefit analysis," he said.

Ciommo also pointed out that in March 2018, the European Commission announced a legislative proposal to levy a 3 percent digital tax on tech giants, but it came to nowhere due to opposition from Ireland and Finland. It is necessary to unify the EU countries' positions on this issue, he said.

"If the European Union members cannot unify their positions on the digital tax, it indicates that they have yet to get ready to handle the following challenges, so some member countries have to fight alone," he said.

Italy and other European Union members have long complained that tech giants collect substantial profits in their countries but pay little tax each year. But the EU has so far failed to agree as a bloc on how to tax the firms.