Italy Begins Audit of Meta in Tax Case That Could Cost Facebook Parent $925 Million

Italy expects to take until the end of the year for an initial assessment of Facebook parent Meta in a tax case that could land the US company with a bill of around 870 million euros ($925 million or roughly Rs. 7,609 crore) and prove a test case for the tech sector.

Although a modest sum for a company that brought in more than $32 billion (roughly Rs. 8,225 crore) in revenue last year, the case could have much wider ramifications for the industry as it hinges on the way that Meta provides access to services such as Facebook and Instagram.

The case stemmed from an Italian audit that claimed Meta user registrations could be seen as a taxable transaction as they implied the non-monetary exchange of a membership account for the user's personal data.

The audit, devised and carried out by Italy's Guardia di Finanza (GdF) police, was passed on by the European Public Prosecutor's Office (EPPO) and a criminal investigation was opened earlier this year by Milan magistrates.

That has prompted a dialogue between Meta and the Italian tax agency -- the assessment phase -- which will end this year either with the company's acceptance of payment or with the start of tax litigation.

The assessment, according to a source with direct knowledge of the matter, involves the highest ranking Italian tax officials because of the sensitivity of the issue. Its outcome will condition how the criminal investigation is pursued.

Meta said it takes its tax obligations seriously, pays all tax required in the countries where it operates and will fully cooperate with the Italian authorities.

"We strongly disagree with the idea that providing access to online platforms to users should be charged with VAT," a Meta spokesperson said in an emailed statement to Reuters.

DIRECT LINK?

Italy's tax police and revenue agency calculated a model under which Meta would have had to pay around 220 million euros of sales tax in the country in 2021. The figure for the period back to 2015 was calculated at 870 ($925 million or roughly Rs. 7,609 crore) million euros.

"The GdF objection would essentially stem from the fact that social memberships, although allowed free of charge, implied the payment of a non-monetary consideration represented by the users' concession to META's use of their personal data," said Sergio Sirabella, an international tax adviser.

He added that the GdF approach would be successful if it established "a direct link between the provision of free membership to online platforms and the data that is harvested from users".

"The consequence of this would be that the entire industry sector of digital platforms and the tech giants would have to review how users access data," added Sirabella, who has lectured at the GdF's Economic Financial Police School.

Meta will base its defence on the argument that there is no direct link between its services and access to data that can help advertisers to target consumers.

The EPPO is awaiting the outcome of the Italian case before it decides whether to pursue similar action in other European Union states, a source with knowledge of the matter had said. 

© Thomson Reuters 2023