Meta, X and LinkedIn defend themselves against Italy's tax demands

The US tech companies Meta, X and LinkedIn have lodged an appeal against a VAT claim by Italy that could set a precedent for tax policy across the European Union (EU). This was reported exclusively by the news agency Reuters on Monday, citing four sources familiar with the matter.

It is the first time, writes Reuters, that Italy has failed to reach a settlement agreement after making tax claims against tech companies. Full-fledged tax court proceedings have therefore been initiated. The Italian tax authorities argue that free user registrations on the X, LinkedIn and Meta platforms should be considered taxable transactions as they involve the provision of a membership account in exchange for users' personal data. According to several experts interviewed by Reuters, the Italian approach could also affect companies beyond tech groups –, from airlines to supermarkets and publishers. Numerous companies link access to free services on their websites to consent to cookies that collect user data. In addition, the levying of such a VAT could be extended to the entire EU.

Dispute worth more than one billion euros

The specific dispute involves tax claims of more than one billion euros. Italy is demanding 887.6 million euros from Meta, the parent company of Facebook and Instagram, 12.5 million euros from Elon Musk's social network X and around 140 million euros from Microsoft's LinkedIn. The three companies submitted their appeals to a first-instance tax court in Italy a few days ago, according to Reuters, but probably after the deadline for responding to the tax assessment notice in March.

Meta told Reuters that it had "cooperated fully with the authorities in fulfilling our obligations under EU and local law". The company "strongly rejects the idea that the provision of access to online platforms for users should be subject to VAT".

Threat of years of litigation

According to Reuters, a full trial in this matter would involve three instances and take an average of ten years. However, it is uncertain whether this will happen.

As a next step, the government in Rome is preparing to obtain an expert opinion from the EU Commission, according to Reuters sources. The Italian tax authority will prepare specific questions for this, which the Italian Ministry of Economy will then send to the EU Commission's VAT Committee. This committee meets twice a year. Italy plans to submit the questions for the meeting scheduled for the beginning of November.

The EU Commission's VAT Committee is an independent advisory body. Its assessment is not binding for the Commission. However, a negative verdict could prompt Italy to close the proceedings and drop the criminal investigations by the Italian public prosecutor's office against the tech companies, according to Reuters with reference to the sources.

The proceedings are made even more explosive by the trade conflict initiated by the US government of Donald Trump against the EU. From August 1, goods from the EU are to be subject to tariffs of 30 percent. The EU's plans for a tax on large digital companies are a particular thorn in Trump's side. Shortly after his tariff threat, there were reports that the EU Commission could back down on the digital tax in order to facilitate tariff negotiations with the USA. Trump also threatened neighboring Canada with tariffs in retaliation for the digital tax considered there, which was recently overturned.

(akn)