Italy may strengthen digital services tax in 2025 budget

Rome: Italy is considering ways to increase revenues from its digital services tax as part of its 2025 budget, two officials said, although the government is concerned about retaliation from the United States, where most of the tech giants affected are based.

Washington has threatened tariffs against unilateral digital services taxes in Europe such as the Italian levy, which raises almost 400 million euros ($439 million) per year and applies to Meta Platforms Inc (META.O), opens new tab, Google (GOOGL.O), opens new tab and Amazon (AMZN.O), opens new tab.

U.S. Commerce Secretary Gina Raimondo will be in Rome this week for a meeting of ministers from the Group of Seven (G7) wealthy democracies, and will meet Italian Prime Minister Giorgia Meloni on Oct. 10.

The officials, who asked not to be named due to the sensitivity of the matter, said the Treasury could revise the tax by increasing the number of companies that have to pay it or by increasing it for firms already targeted.

Italy’s 2019 budget introduced a 3% levy on revenue from internet transactions for digital companies with sales of at least 750 million euros, at least 5.5 million of which are made in Italy.

The tax was due to be scrapped following approval of the first pillar of a global minimum tax aimed at reallocating taxation rights on about $200 billion of corporate profits to the countries where the companies involved do business.

But that international legislation has never come into force, having become bogged down by divisions between the U.S., India and China, and despite Italy’s effort to revive talks under its G7 presidency this year.

An agreement between the U.S. and five EU countries including Italy that resulted in a freeze of Washington’s threatened tariffs formally expired in June, although the U.S. has not since acted on its previously announced plans.

Treasury Junior Minister Lucia Albano said last week the government wants to intervene in distortions that legally allow companies including e-commerce groups to pay less than they should.

Italy will announce later this month a 2025 budget plan with stimulus measures it has indicated will be worth around 25 billion euros, mainly related to cutting income taxes and social contributions.

Under the plan, the government is expected to widen next year’s budget deficit to 3.3% of gross domestic product from an estimated 2.9% based on current trends, and would therefore borrow an extra 9 billion euros to fund the package.

The rest is expected to be financed through a combination of higher fiscal revenues and spending cuts.

Options being studied to collect more revenues include raising excise duties on diesel and eliminating some tax breaks available to companies regarding the main corporate tax, IRES, a separate official said.

Albano also said Rome was looking to review tax rules on stock options aimed at remunerating managers and banks’ tax credits stemming from past losses, or so-called deferred tax assets (DTA).