In Italy, the Financial Stability Act-2014 (Law no. 147/2013,– “Legge di Stabilità”) has laid down the new tax rules that, starting from July 1, 2014, businesses and professionals need to observe for the purchase of advertising services and online sponsored links (so-called WEB TAX).

The Financial Stability Act-2014 has included, in the so called VAT Decree (Presidential Decree no. 633/1972) the new article 17-bis, entitled Purchase of online advertising, which provides that, from a VAT perspective, subjects who intend acquiring on-line advertising and links. also through media centers and third party operators, are required to purchase these services from registered entities whose VAT registration is authorized by the Italian financial authorities.

Moreover, the second paragraph of the new article 17-bis requires that sponsored advertising spaces and links which appear in the results of search engines (search advertising), visible in Italy during a visit to an internet site or through an on-line service, via fixed or mobile lines, must be purchased exclusively through entities such as editors, advertising agencies, search engines or other advertising operators who hold a VAT number issued by the Italian financial authorities. This provision shall also apply in those instances where the purchase is made through media centers, third-party operators and parties who advertise the availability of such spaces.

In essence, starting from July 1, 2014, it lays down the obligation for VAT purposes: 1) to purchase on-line advertising and links from who holds an Italian VAT number and 2) to purchase sponsored advertising spaces and links from who holds an Italian VAT number.

Furthermore, the Financial Stability Act-2014 provides that the purchase of online advertising services or ancillary services must be exclusively carried out by bank or postal transfer or other payment means which are traceable with an identification number of the Beneficiary, in order to enable all the due tax authority controls.

The Web Tax, also known as Google Tax, would seem to require big web companies (i.e. Google, Microsoft, Ebay, Facebook, Amazon e Yahoo) to pay taxes directly in Italy. In so doing, revenues of these companies, for the most part coming from the sale of advertising, should be subject to tax in Italy.

However, this seems to conflict with the EU regulations allowing the biggest web companies to have a single registered office in Europe, and not one for each country in which they operate. Said companies, of course, choose (as registered office) those countries where they can take advantage of easier tax regimes thus avoiding paying taxes in other countries to which they offer their services.

In essence, the Financial Stability Act-2014 has been strongly criticized by those who believe that the rule, by excluding from the Italian market anyone who does not hold an Italian VAT number where not needed (for example, should the permanent establishment for VAT purposes emerge), is contrary to the freedom of movement of goods and services and non-discrimination EU regulations.

Such doubts have already been raised by the European Commission and, perhaps for these reasons, a subsequent decree approved December 27, 2013 (so called “Milleproroghe” Decree) has established the postponement of the WEB TAX to July 1, 2014 (originally the entry into force of the rule was scheduled for January 1, 2014) in order to avoid a possible EU infringement procedure against Italy.

In particular, the European Union has criticized the Web Tax by considering it, at first sight, contrary to the treaty’s fundamental freedoms and principles of non-discrimination, inviting the Italian government to ensure that any new legislative measure is fully in accordance with European law.