Italy’s evaluation of Facebook parent company Meta’s tax case is underway and could serve as a significant test for the tech industry. The assessment, expected to conclude by the end of the year, may result in Meta facing a potential tax bill of approximately 870 million euros ($925 million).
While the amount may seem relatively small for a company that generated over $32 billion in revenue last year, the case’s repercussions could extend far beyond. The focus lies in how Meta grants access to its services, including Facebook and Instagram.
The origin of the case can be traced back to an Italian audit, which argued that Meta’s user registrations could be considered taxable transactions due to the exchange of a membership account for personal data, even without monetary value.
This audit, conducted by Italy’s Guardia di Finanza (GdF) police, was referred to the European Public Prosecutor’s Office (EPPO), leading to a criminal investigation initiated by Milan magistrates earlier this year.
Consequently, Meta has engaged in a dialogue with the Italian tax agency during the assessment phase, which is expected to culminate either in the company accepting payment or tax litigation commencing.
Given the sensitivity of the issue, senior Italian tax officials are directly involved in the assessment, as its outcome will influence the trajectory of the criminal investigation.
Meta has emphasized its commitment to fulfilling tax obligations and cooperating fully with Italian authorities, emphasizing that it disagrees with the notion that providing access to online platforms should incur value-added tax (VAT).
Italian tax authorities and the revenue agency estimated that Meta should have paid approximately 220 million euros in sales tax in the country for 2021 alone. The total calculated figure dating back to 2015 amounts to 870 million euros.
Sergio Sirabella, an international tax adviser, explained that the GdF’s objection stems from the belief that free social memberships still entail a non-monetary consideration represented by users granting Meta permission to use their personal data.
Sirabella noted that the GdF’s approach would be successful if it establishes a direct connection between the provision of free memberships to online platforms and the data collected from users. Should this be proven, the entire digital platform sector and tech giants would need to reassess user data access methods.
Meta’s defense strategy will revolve around asserting that no direct link exists between its services and access to data that assists advertisers in targeting consumers effectively.
The EPPO is closely monitoring the Italian case’s outcome to determine whether similar action should be pursued in other European Union countries, according to a source familiar with the matter.