Italian 2025 Budget Law removes 5.5 million euros digital revenue threshold for digital services tax

January 2025

In brief

What happened?

The Italian 2025 Budget Law eliminates the 5.5 million euros digital services revenue (local) threshold for the application of the Italian digital services tax (IDST), increasing the number of potential taxpayers subject to IDST.

The 2025 Budget Law also amends the IDST payment deadline by introducing an advance payment due by November 30, equal to 30% of the IDST due for the previous calendar year. The balance is due by May 16 of the subsequent calendar year. Prior to the 2025 Budget Law, IDST payment for the calendar year was due May 16 of the following year. The deadline to submit the IDST return remains unchanged (June 30 of the following calendar year).

Why is it relevant?

Beginning January 1, 2025, both resident and non-resident entities with revenues exceeding 750 million euros on a group level or on a standalone basis may be subject to IDST in Italy at a rate of 3% for any consideration deriving from the provision of taxable digital services to Italian users through digital interfaces. 

Actions to consider

The removal of the 5.5 million euros digital revenue threshold significantly increases the number of digital businesses (e.g., social media, marketplaces, transmission of data services providers, targeted advertising services providers) exposed to IDST. Any digital business that previously did not pay attention to the IDST because their digital services revenue amounts were below the threshold now should carefully assess their operations as they could be subject to the IDST.

In detail

IDST taxpayers

IDST taxable persons include companies, entities, and individuals, whether residents or non-residents in Italy (and in the latter case, regardless of the existence of a permanent Italian establishment) engaging in commercial activities and that, on a standalone basis or at the group level, deriving 750 million euros in revenue. Beginning January 1, 2025, the additional threshold of 5.5 million euros specifically related to digital services revenue has been removed. To determine the 750-million-euro threshold, it is necessary to take into account:

  • all revenues, anywhere realized and of any nature;
  • in the case of a ‘group,’ all revenues generated by entities included within the consolidation perimeter (fully or using the pro-rata method, excluding entities consolidated using the equity method), regardless of the nature of the activity carried out;
  • the revenues resulting from the consolidated financial statement (or  in the absence, from the official financial statement drafted on a standalone basis) closed in the year previous (e.g., 2024) to the one subject to taxation (e.g., 2025), according to the accrual principle and prepared according to correct accounting principles such as IAS/IFRS or other national reporting system with outcomes equivalent and comparable to those resulting from the adoption of IFRS. Italian Tax Authorities clarify that the ‘net’ revenues are to be considered where the relevant accounting principle requires reporting revenues in the financial statements net of the related costs. This is, for example, the case of intermediaries who, according to IFRS15 or Italian GAAP34, report the commission in the financial statement (namely the revenues net of the related costs).

In-scope digital services

The IDST applies from 2020 onward at a 3% rate to gross taxable digital services revenues. In-scope digital services subject to IDST are:

  • channeling (intermediation and/or hosting) on any digital interface (e.g., website, platforms, apps) advertising targeted at users;
  • making available a multisided digital interface that allows users to connect and interact with each other, also to facilitate the direct supply of goods or services (e.g., all marketplaces of goods and services as well as social networks); and the
  • transmission of data collected from users and generated using a digital interface.

Certain digital services are excluded from the scope of the IDST by law, such as the direct supply of goods and services provided in the context of a digital intermediation service, supply of goods or services ordered through the supplier's website of those goods or services, when the supplier does not act as an intermediary, and intra-group digital services under certain conditions).

Observation:  IDST taxpayers should analyze and identify all revenue streams arising within their business models in order to limit the IDST taxable base.

Relevant tax period and deadlines

The tax period for the IDST is the calendar year and the related payment is due:

  • by November 30 of the reference calendar year (through an advance payment equal to 30% of the IDST amount due for the previous calendar year);
  • by May 16 of the following calendar year (the IDST balance).

The IDST return must be submitted by June 30 of the calendar year following the reference calendar year. Italian value-added tax (VAT) regulations apply for purposes of assessment, penalties, and collection of the IDST. Therefore, should the IDST declaration be filed over the envisaged deadline or omitted, the VAT rules as compatible will be relevant for imposing administrative penalties to IDST taxpayers (in case of failure to submit the IDST tax return and pay the IDST due, criminal penalties also could apply). 

Designation for the obligations related to the IDST 

In order to comply with the identification obligation (for non-resident entities), IDST payment and IDST declaration obligations, as well as for submitting a refund request, resident or non-resident taxable entities belonging to a group can designate another entity, on an optional basis and not according to an ‘all in-all out’ principle (it is not necessary that all the group’s entities opt for the designation and/or that all the group’s entities are IDST taxable persons themselves).

IDST, double taxation conventions, and IDST deductibility

According to the Italian Tax Administration the IDST is an indirect tax, and accordingly does not fall within the scope of application of the conventions against double taxation. However, IDST can be deducted for purposes of the Italian corporate income tax (IRES) in the fiscal year in which the related payment occurs.

IDST taxable persons include companies as well as entities and individuals, whether they are residents or non-residents in Italy (and in the latter case, regardless of the existence of a permanent Italian establishment) engaging in commercial activities and that, on a standalone basis or at the group level, derive 750 million euros in revenue. Starting from January 1, 2025, the additional threshold of 5.5 million euros specifically related to digital services revenue has been removed. To determine the 750-million-euro threshold, it is necessary to take into account: 

  • all revenues, anywhere realized and of any nature;
  • in the case of a ‘group,’ all revenues generated by entities included within the consolidation perimeter (fully or using the pro-rata method, excluding entities consolidated using the equity method), regardless of the nature of the activity carried out;
  • the revenues resulting from the consolidated financial statement (or  in the absence, from the official financial statement drafted on a standalone basis) closed in the year previous (e.g., 2024) to the one subject to taxation (e.g., 2025), according to the accrual principle and prepared according to correct accounting principles such as IAS/IFRS or other national reporting system with outcomes equivalent and comparable to those resulting from the adoption of IFRS. Italian Tax Authorities clarify that the ‘net’ revenues are to be considered where the relevant accounting principle requires to report revenues in the financial statements net of the related costs. This is for example the case of intermediaries who, according to IFRS15 or Italian GAAP34, report the commission in the financial statement (namely the revenues net of the related costs).  

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Ed Geils

Ed Geils

Global and US Tax Knowledge Management Leader, PwC US

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