Italy Eyes Digital Tax Boost for 2025 Budget Amid US Concerns

Italy is exploring options to increase revenue from its digital services tax as part of its 2025 budget planning, according to two unnamed officials. This consideration comes amid concerns about potential retaliation from the United States, where many of the affected tech giants are based.

The Italian digital services tax, introduced in 2019, currently generates approximately 400 million euros annually. It applies to companies with global sales of at least 750 million euros, including Meta Platforms Inc, Google, and Amazon. The tax rate stands at 3% on revenue from internet transactions.

As Italy seeks to finance its 2025 budget, which includes stimulus measures worth around 25 billion euros, the government is exploring various revenue-raising options. These include potentially expanding the base of companies subject to the digital tax or increasing the rate for those already targeted.

The timing of this consideration is significant, as Gina Raimondo, the U.S. Commerce Secretary, is scheduled to visit Rome for a G7 ministers meeting. She is set to meet with Italian Prime Minister Giorgia Meloni on October 10, 2023, potentially discussing this issue among others.

Italy's move comes against the backdrop of stalled global tax reform efforts. The digital services tax was originally intended to be scrapped following the approval of a global minimum tax, which aimed to reallocate taxation rights on approximately $200 billion of corporate profits. However, this international legislation has not come into force due to divisions between the United States, India, and China.

"The government wants to intervene in distortions that legally allow companies including e-commerce groups to pay less than they should."

Italy's 2025 budget plan is expected to widen the country's 2024 budget deficit to 3.3% of GDP, up from the current estimate of 2.9%. This would require borrowing an additional 9 billion euros to fund the package, which primarily focuses on cutting income taxes and social contributions.

In addition to the digital tax considerations, Italy is exploring other revenue-raising measures. These include potentially increasing excise duties on diesel, eliminating certain corporate tax breaks, reviewing tax rules on stock options for managers, and examining banks' tax credits stemming from past losses (deferred tax assets).

As Italy holds the G7 presidency in 2023, it has been attempting to revive talks on the global minimum tax. However, the expiration of an agreement between the U.S. and five EU countries in June 2023 has added complexity to the situation. While the U.S. has not yet acted on its previously announced plans for tariffs, the threat remains a concern for Italian policymakers.

The ongoing debate surrounding digital taxation highlights the challenges of adapting fiscal policies to the rapidly evolving digital economy. As countries like Italy seek to ensure fair taxation of tech giants, they must balance their revenue needs with the risk of international trade tensions and the broader goal of global tax reform.