The presentation addresses the impact of the digital tax proposal (EU and Italian) on Chinese companies doing business in Italy. It has been used during a seminar at the Chinese University of Fiance and Economics.

1. Digital Taxation: an Assessment
Professor Marco Greggi
Beijing, November 6th 2019
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2. Outline of the Presentation
• The “Many Faces” of a Single Problem;
• The OECD Gentle Approach;
• The European Strategy;
• The Italian Case.
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3. The Theory
• Digital Business disrupts the classical concepts of International Tax Law,
whose development dates back to the League of Nations;
• Residence State;
• Source State;
• Result: asymmetry between the place where value is created and the
place where the business is liable to tax;
• Yet the definition of “Digital” or “Web” is anything but clear.
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4. The Practice
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Idri BK srl

5. The OECD Position
• Base Erosion and Profit Shifting Project, Action 1: addressing the Tax
Challenges of the Digital Economy using the concept of Value
Creation;
• October 5th 2015, the Final report focuses on three main areas of
intervention;
1. Permanent establishment;
2. Transfer pricing (taxation ancillary to value creation);
3. CFC update, as to address digital businesses.
• Not recommended:
• Equalization levy, digital presence test, specific withholding taxes.
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6. The Commission Strategy
• Two Prongs approach:
• Soft law:
1. Recommendation to the Member state to re-negotiate wherever / whenever possible
DTCs with third countries consistently with the necessities of the digital economy;
• Hard Law:
1. Directive proposal addressing the definition of permanent establishment where DTCs
are not in force with third countries, as to attract more income in the EU in qualified
circumstances COM (2018) 147;
2. Directive proposal introducing a new Digital Tax to target specific digital operations
COM (2018) 148.
• The new (Italian) Commissioner to taxation, Mr. Gentiloni,
confirmed so far this approach.
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7. The European Map
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8. The Italian Case
• As from January 1st 2020 the Italian Digital Tax should be in force:
• 3% tax on the revenue for the services delivered online in Italy concerning:
• Advertisement;
• Social interface;
• Data management;
• Threshold relevant:
• Amount of revenue in Italy no less than € 5.500.000 (costs are not deductible);
• Global amount of revenue no less than € 750.000.000.
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9. Redefining digital presence
• Italy has unilaterally extended the scope of Permanent
establishment in 2018, including the “hidden PE”:
• A continuous economical presence of a non resident business
arranged in a way as not to match the physical presence test;
• Introduced a targeted digital service tax, inspired by EU guidelines (as
from January 1st 2019: §§ 35 – 52 Italian Finance Act 2019).
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10. The State of the Art
(One Example)
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11. Continued
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12. The End of the Story
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Netflix announces a partnership with
Mediaset and a new legal seat in Italy.
Reed Hastings: «We are considering a legal
seat in Italy as to address the increasing
number of tax disputes Netflix
is experiencing».
Note: Netflix currently has approx.
2.000.000 clients (source: ANSA) in Italy for
a minimal monthly payment of € 14 each.

13. Concluding Remarks
• Innovation driven by Budget necessities;
• Temporary nature (waiting for OECD / EU precise guidelines);
• For Chinese Businesses: necessity to rely on the Double Taxation
Convention as for what concerns the definition of Permanent
establishment.
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14. Thanks for your Attention
marco.greggi@unife.it
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