Italy: Withholding tax on services provided by property intermediation platform via internet

The Advocate General of the Court of Justice of the European Union (CJEU) today released an opinion finding that the tax regime in Italy for short-term rentals imposing obligations on property intermediaries does not violate the freedom to provide services and does not preclude the obligation to collect and transmit information or to withhold tax.

However, the Advocate General found that an obligation to appoint a tax representative constitutes a disproportionate restriction on the freedom to provide services.

The case is: Airbnb Ireland and Airbnb Payments UK (C-83/21)

As explained in a release [PDF 226 KB] from the CJEU:

• The taxpayer—a global group that operates the property intermediation platform on the internet—facilitates connecting lessors who have accommodation with persons seeking that type of accommodation, by collecting from the customer the payment for the provision of the accommodation before the start of the rental and transferring that payment to the lessor.
• An Italian law of 2017 establishes a new tax regime for short-term property rentals outside a commercial activity, covering the taxpayer as an operator of a property intermediation platform, and applying to contracts for the rental of residential property by natural persons outside a commercial activity for a maximum period of 30 days, whether concluded directly with the tenants or through persons who pursue property intermediation activities or operators of online platforms.
• Beginning 1 June 2017, income from such rental contracts is subject to a schedular withholding tax at a rate of 21% and information relating to rental agreements must be transmitted to the tax authorities. When they receive rents, persons resident in Italy who pursue property intermediation activities as well as those who operate online platforms, must withhold 21% of the amount of the rents and pay that to the tax authorities. Non-resident persons considered as not having a permanent establishment in Italy are obliged to appoint a tax representative as the taxable person.

Two entities (one located in Ireland and the other in the UK) that belong to the global group, brought an action seeking to annul the decision implementing the tax regime at issue. The Council of State, Italy (Consiglio di Stato) asked the CJEU to interpret several provisions of EU law relating to obligations imposed by Italian national law on intermediaries involved in the short-term rental of immovable property. 

In the opinion delivered today, the Advocate General reached several findings and in general concluded that the obligation to collect tax and provide information to the tax authorities and the obligation to appoint a tax representative were not technical regulations within the meaning of Directive 2015/1535.

Regarding the withholding of tax, the Advocate General found that it did not constitute indirect discrimination against cross-border service providers. According to the Advocate General, it was consistent to impose the obligation to withhold tax on intermediaries involved in the payment of rent, given that the activity of a large number of natural persons who are not subject to the obligations incumbent on professionals is difficult to audit for tax purposes. Furthermore, the tax regime did not concern the taxation of the taxpayer’s services, but the taxation of the rental of immovable property located in Italy (underlying those services). Thus, the withholding tax regime was found to be within the tax competence of the Italian government.

However, the Advocate General found the obligation to appoint a tax representative constitutes a disproportionate restriction on the freedom to provide services and is contrary to a provision of the EU treaty.

The Advocate General’s opinion is not binding on the CJEU. The role of the Advocates General is to propose to the court, a legal solution to the cases for which they are responsible. The CJEU judges will now begin their deliberations in this case with a judgment to be given at a later date.

Read a July 2022 report prepared by KPMG's EU Tax Centre