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23 December 2013

Italy’s Web Tax Quandary 

Italy’s proposal to impose an effective levy on companies that conduct online marketing in the country illustrates the challenge of attempting to ensure that global corporations pay what countries regard as their fair share of taxes.

If finalized, the legislation would oblige tech giants Google and Facebook, among others, to sell advertising only via companies located and taxed in Italy – and, the government believes, would bring in as much as €1 billion in revenues for a country anxious to reduce its budget deficit.

What has been dubbed the “Google tax” would stop companies taking advantage of lower tax rates in other European countries such as Luxembourg or Ireland. The only problem, says the European Commission, is that the law appears likely to infringe on the principles of the EU’s single market for goods and services.

Whatever the final outcome, the case underscores the immense complexities created by globalization and the move to digitize many aspects of commerce. Multinational companies have been accused of arranging their corporate affairs in order to record profits in jurisdictions with the lowest possible rates of tax rather than in the countries where their customers live.

The Italian tax plan is one answer, but it may fall foul of the rules designed to allow companies throughout the EU to compete on equal terms.

It also illustrates that a true level playing field will prove elusive unless all EU countries adopt the same tax rules. But that may require giving up more national sovereignty than member states are willing to contemplate.