Italy’s Budget Law for 2025, which applies as from 1 January 2025, makes significant changes to the Digital Services Tax (DST), in particular, eliminating a revenue threshold for entities to fall within the scope of the DST and introducing an advance payment obligation. These modifications will bring more entities into the DST net and increase compliance responsibilities.
Previously, the DST applied to “entities” that met two revenue thresholds. Entities for these purposes are Italian companies, nonresident companies with a local permanent establishment (PE) or identified in Italy for VAT purposes, as well as nonresident companies that do not have an Italian PE/are not identified for VAT purposes. The DST was triggered when an entity that, individually or at a group level, in the calendar year before the year in which the taxable revenue was derived, met both of the following revenue thresholds:
Under the old rules, taxpayers were only required to make a single annual payment of the DST due by 16 May of the year following the reference year. The budget law introduces an advance payment equal to 30% of the amount of the tax due for the previous calendar year that must be paid by 30 November of the relevant calendar year. The balance of the tax due must be made by 16 May of the year following the reference year. For example, for calendar year 2025, covered taxpayers must make the advance payment equal to 30% of the DST relating to 2024 by 30 November and pay the final balance of DST due for 2025, reduced by the advance payment, by 16 May 2026.
The DST rules in Italy (and in other countries) are expected to be repealed once global consensus is reached on Pillar One, an essential component of the OECD’s base erosion and profit shifting initiative that will restructure the taxing rules relating to the provision of cross-border digital services. Under Pillar One, the DST tax flow will be replaced by amounts to be paid by “major companies” under “Amount A” (which will reallocate the rights to tax the profits of the largest multinational companies). However, with issues remaining unresolved under Pillar One, it is unclear if and when DSTs will be eliminated. Therefore, entities in Italy should closely monitor developments relating to the Pillar One provisions and be cognizant of the expanded scope and compliance obligations under Italy’s DST rules.
Federico Prada
BDO in Italy
Taxable Entities
Previously, the DST applied to “entities” that met two revenue thresholds. Entities for these purposes are Italian companies, nonresident companies with a local permanent establishment (PE) or identified in Italy for VAT purposes, as well as nonresident companies that do not have an Italian PE/are not identified for VAT purposes. The DST was triggered when an entity that, individually or at a group level, in the calendar year before the year in which the taxable revenue was derived, met both of the following revenue thresholds:
- Total worldwide revenues of at least EUR 750 million; and
- Total revenues from qualifying digital services in Italy of at least EUR 5.5 million.
Payment Obligation
Under the old rules, taxpayers were only required to make a single annual payment of the DST due by 16 May of the year following the reference year. The budget law introduces an advance payment equal to 30% of the amount of the tax due for the previous calendar year that must be paid by 30 November of the relevant calendar year. The balance of the tax due must be made by 16 May of the year following the reference year. For example, for calendar year 2025, covered taxpayers must make the advance payment equal to 30% of the DST relating to 2024 by 30 November and pay the final balance of DST due for 2025, reduced by the advance payment, by 16 May 2026.
BDO Insight
The DST rules in Italy (and in other countries) are expected to be repealed once global consensus is reached on Pillar One, an essential component of the OECD’s base erosion and profit shifting initiative that will restructure the taxing rules relating to the provision of cross-border digital services. Under Pillar One, the DST tax flow will be replaced by amounts to be paid by “major companies” under “Amount A” (which will reallocate the rights to tax the profits of the largest multinational companies). However, with issues remaining unresolved under Pillar One, it is unclear if and when DSTs will be eliminated. Therefore, entities in Italy should closely monitor developments relating to the Pillar One provisions and be cognizant of the expanded scope and compliance obligations under Italy’s DST rules.Federico Prada
BDO in Italy