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Italian Budget Law 2019: VAT and indirect tax measures

Executive summary

On 29 December 2018, the Italian Parliament approved the 2019 Budget Law, i.e. Law No. 145 of 2018 published on the Official Gazette of 31 December 2018 (the Budget Law).

The Law includes the following main indirect tax measures:

  • Introduction of a tax on digital services
  • Postponement of the Value Added Tax (VAT) rates increase to 2020
  • Extension of the VAT-reduced rate to certain medical devices and to certain bakery products

Detailed discussion

Digital Services Tax

The Budget Law introduces a new tax applicable to the provision of digital services (Italian Digital Services Tax or DST) by repealing the old measure introduced by the 2018 Budget Law (the “web-tax”), which never entered into force.

According to the new rules, the DST will be due by taxable persons (either established or non-established in Italy) carrying on business activities that, individually or at the group level, jointly meet the following thresholds during the fiscal year:

  • Total amount of revenues (wherever arising) not lower than €750,000,000
  • An amount of revenue derived from digital services (arising in Italy only) not lower than €5,500,000

The DST shall be applied only to revenues derived from the following digital services (the Digital Services):

  1. Provision of advertising on a digital interface targeted to users of the same interface
  2. Provision of a digital multilateral interface aimed at allowing users to interact (also in order to facilitate the direct exchange of good and services)
  3. Transmission of data collected from users and generated by the use of a digital interface

The DST shall apply at a 3% rate on the gross amount of the revenues realized in Italy on the sale of digital services and shall be paid by the supplier of digital services on a quarterly basis by the end of the month following each quarter.

The Ministry of Finance is required to issue an implementing decree within the following four months following the entry into force of the Budget Law (i.e., by 30 April 2019) and the DST will apply as from the 60th day after its publication in the Official Gazette (i.e., accordingly, it should be applicable starting from 30 June 2019).

A separate EY Global Tax Alert will be issued on this development.

VAT rates increase postponed

Article 1(2) of the Budget Law confirms the “safe-guard clause” – initially set forth by the 2015 Stability Law – providing a VAT ordinary and reduced rate increase as from 2020 in the absence of alternative equivalent financial resources.

In the light of the above, no changes in the 2019 tax period shall occur in the VAT rates. Therefore, the following rate will continue to apply in 2019:

  • The ordinary rate of 22%
  • The reduced rates of 4%, 5% and 10%

In the following tax periods, the VAT rates are scheduled to increase as follows:

  • The ordinary rate to 25.2% as from 1 January 2020 and to 26.5% as from 1 January 2021
  • The 10% reduced rate to 13% as from 1 January 2020

No increases will apply to the 4% and 5% super-reduced rates.

The above mentioned rate increase can be replaced (in whole or in part) by regulatory measures to ensure the same positive effects on the public finances through rationalization and revision of public spending.

Extension of VAT-reduced rates to certain medical devices and certain bakery products

Article 1(3) of the Budget Law extends the reduced 10% rate to be applied on sales of medicines to other products, classified in the combined nomenclature 3004, commonly used for therapeutic healing or for disease prevention. The impact of this provision on the pharma industry will be further illustrated in a separate VAT Alert.

Article 1(4) expands the definition of bakery products subject to the 4% reduced rates to also include as bread, for example, any type of cereal, oil seeds, aromatic herbs of common use, thus extending the bakery products subject to the super-reduced rate.

EYG no. 012829-18Gbl

Download this Tax Alert as a PDF file.

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