Italy is set to complete an initial assessment regarding a tax case involving Meta, the parent company of Facebook, by the end of the year. This case could potentially result in a substantial financial penalty of approximately 870 million euros ($925 million or around Rs. 7,609 crore) and may serve as a benchmark for taxation in the technology industry.
While this amount may appear minor for a corporation that reported over $32 billion (around Rs. 8,225 crore) in revenue last year, the implications of the case could extend far beyond Meta, as it raises questions about how the company accounts for services such as Facebook and Instagram.
The investigation originated from an audit conducted by Italy’s Guardia di Finanza (GdF), which argued that user registrations with Meta could be interpreted as a taxable transaction, reflecting a non-monetary exchange of membership for the user’s personal data.
This audit was forwarded to the European Public Prosecutor’s Office (EPPO), prompting Milan magistrates to initiate a criminal investigation earlier this year.
This situation has initiated discussions between Meta and the Italian tax authorities during the assessment phase, which is expected to conclude by year-end, either with Meta agreeing to pay or entering tax litigation.
A source familiar with the matter indicated that the assessment process is being conducted by senior Italian tax officials, highlighting the sensitive nature of the investigation. The outcome is expected to influence the direction of the ongoing criminal inquiry.
Meta has stated its commitment to fulfilling its tax obligations, asserting that it complies with tax laws in all countries where it operates and will fully engage with Italian authorities.
A spokesperson for Meta expressed strong disagreement with the notion that providing users access to its online platforms should incur VAT charges, according to an emailed statement to Reuters.
Italy’s tax authorities calculated that Meta would owe approximately 220 million euros in sales tax for 2021, with a total liability since 2015 estimated at 870 million euros ($925 million or roughly Rs. 7,609 crore).
Sergio Sirabella, an international tax advisor, noted that the GdF’s argument is based on the premise that free social memberships involve a non-monetary consideration: the permission granted by users for Meta to utilize their personal data.
Sirabella added that if the GdF can establish a direct correlation between access to free online services and the utilization of user data, it may set a significant precedent for the entire digital platform and tech industry.
Meta’s defense will likely assert that there is no direct connection between the services it provides and the access to data used by advertisers for consumer targeting.
The EPPO will hold off on deciding whether to take similar actions in other European Union countries until it observes the outcome of the Italian case, according to a knowledgeable source.
© Thomson Reuters 2023
