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9 February 20217 minute read

Announced, proposed and implemented: Key features of Italy's DST

With the 2020 Budget Law, Italy’s DST has been reshaped to mirror the European Commission proposal of March 21, 2018, COM (2018) 148.  In January 2021, the Italian Revenue Agency issued operational guidelines for the implementation of the tax and related special accounting obligations, as well as a specific form to be used for filing the annual tax return (the DST Form).


The Italian DST of 3 percent applies to revenues derived from the provision of qualified “digital services­­” that are territorially relevant in Italy. The first payment of the Italian DST is due on March 16, 2021, while the related annual return shall be filed by April 30, 2021.  Italy’s DST provisions contain a sunset clause: they will be automatically repealed once an agreement on the scope of DST is reached at the level of the Organization for Economic Co-operation and Development (OECD).


Affected taxpayers


Italy’s DST applies to enterprises that, either individually or jointly at group level, meet two revenue thresholds in the calendar year that precedes the one for which DST comes due – for instance, the thresholds should be checked with reference to calendar year 2019 in order to verify if an enterprise is subject to DST on qualified revenues received in 2020.


The two thresholds are:

  • Total amount of worldwide revenues (wherever arising from the exercise of any business activity) equal to or exceeding €750 million and

  • An amount of revenues received from the provision of qualified digital services (as defined below) linked to Italian users equal to or exceeding €5.5 million.

The tax is to be paid by Italian taxpayers as well as by non-Italian-resident companies, regardless of the nature of the service recipient.  Intragroup transactions are excluded.


Covered services – qualified digital services


The digital services subject to DST are divided into three categories:

  1. Transfer or placing on a digital interface of advertising messages targeted at users of that interface – the concept of “digital targeted advertising” would require that messages are placed based on the data collected from the users’ access to the interface,

  2. Making available a multi-sided digital interface that allows users interaction and may also facilitate the supply of goods or services among users

  3. Transmission of data collected about users and generated from such users' activities on digital interfaces (collecting users’ data and selling the data to another – data transmission services).


Excluded activities


The Italian DST is not due on the following activities:

  • direct supply of goods and services, in the context of online intermediation activity

  • supply of goods and services from the web portal of the business to the consumer (“no intermediation”)

  • making available a digital platform with the sole or main objective of providing its users with digital content, communication services, or payment services

  • digital interfaces that manage interbank or financial instruments’ settlement systems, trading platforms, wholesale marketing of government securities, consulting activities related to equity investments, as well as other connecting systems, the activity of which is subject to authorization, and the performance of services is subject to public authority’s supervision

  • sale of data by entities supplying the services included in the point above

  • the management of electronic platforms for the exchange of electricity, gas, environmental certificates, and fuels.

The exact perimeter of the exclusion list leaves room for uncertainty and should be assessed in light of each taxpayer’s business model.


Territorial rule


Not all digital services will be taxed – only those entailing a high degree of users' involvement in value generation.  As a consequence, the territorial requirement is linked to the place where the user is located.  The place where the payment is made would not be relevant per se. The law establishes complex rules in order to determine where the user is located.  The rules are different for each of the three categories of tax-relevant digital services.


For each tax period, entities shall (a) compute the overall worldwide taxable revenues received from the provision of digital services (to any user wherever located) and (b) determine the proportion of qualified revenues to be allocated to Italy. Only the latter amount is subject to Italian DST.


A user's device should be considered as used in Italy by reference to the Internet Protocol (IP) address of the device or by any other method of geolocation that the DST-liable entity may be able to use.


Collection and compliance


The Italian DST applies only to revenues (gross of related expenses and net of VAT) deriving from the provision of tax-relevant digital services linked to Italian-located users. As previously mentioned, revenues from intragroup service provisions are excluded. It is not clear whether the DST could be deducted from the taxable base of Italian corporate income tax, although that seems a viable option under the current tax law framework. Entities subject to DST should prepare monthly accounting reports of revenues from digital services and illustrate the criteria through which a portion of qualified worldwide revenues is allocated to Italy.


Foreign business taxpayers resident in non-EU/EES states that have not concluded an agreement with Italy for mutual assistance in the recovery of tax claims should appoint an Italian tax representative. Notably, in situations where a non-Italian DST-liable entity is part of an MNE group that comprises also Italian subsidiaries, the latter may be held jointly liable for the DST payment. As the Italian Tax Administration made clear, this could be the case even if the Italian subsidiary is not an autonomous DST-liable entity.

Find out more about this evolving concern by contacting the authors or your usual DLA Piper advisor.

To review the key features and country-specific developments of the DST in France, Spain and the United Kingdom, please click on the following links:

Key features of France’s DST

Key features of Spain’s DST

Key features of the United Kingdom’s DST