On Thursday, July 7, an advocate general at the Court of Justice of the EU stated his opinion that Airbnb ought to be required to pay a withholding tax of 21% on each rental transaction and share information in rental agreements with regional tax authorities.
In the case of Airbnb Ireland and Airbnb Payments UK v. Agenzia delle Entrate, Maciej Szpunar dissented from the taxpayer's request to overturn an Italian law requiring it to levy WHT on transactions made through its platform.
The business also wants to do away with the need to name a local tax representative and to share information with authorities. The business argues that the rules violate its ability to offer services in accordance with the Treaty on the Functioning of the EU (TFEU).
Szpunar wrote in his opinion to the court, "Article 56 TFEU in relation to the freedom to provide services does not preclude the obligation to collect and transmit information or to withhold tax,"
Given that the activity of many natural persons who are not subject to the obligations incumbent upon professionals is, by its nature, difficult to audit for tax purposes, he continued, "It is perfectly 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, by its nature, difficult to audit for tax purposes,"
Although Szpunar's viewpoint is not legally binding, the CJEU generally abides by AG recommendations.
Szpunar did concur with one of Airbnb's three arguments, stating that since the cost of compliance lies outside the purview of EU law, the company is not required to have a representative in Italy.
Airbnb declared that it had noted the viewpoint. Company representatives released a statement in which they referenced the impending binding decision from the CJEU and said, "We await the decision from the court too."
The key question in the dispute is whether the WHT, also known as the "Airbnb tax," violates the EU's right to freedom of services. The platform already offers a stronger transaction trail than other rental services, according to Airbnb representatives.
Although the tax is not unique to Airbnb, Aurelio Augusto Metta, senior partner at Studio Legale Metta in Rome, explained that the WHT was named after the company because it is one of the biggest players in the real estate rental sector.
In 2017, Italian legislators passed the law requiring Airbnb to add 21 percent WHT to rental agreements. Additionally, the law mandates that the business inform the Italian authorities of all financial information regarding transactions.
Based on Directive 2015/1535, Airbnb asserts that Italy's tax code contains a technical provision that ought to have been alerted to the European Commission beforehand.
"Airbnb is trying to identify two separate gaps in the Italian and European laws in this case," according to Metta.
The business contends that the freedom to offer services is violated by the requirement to share tax information. The requirement to name a tax representative for any online platform not based in Italy constitutes the final major argument, and it is that it constitutes an excessive restriction on fundamental liberties.
The CJEU adviser, however, supported the Italian law that prohibits tax evasion in the rental market. According to Szpunar, national legislation to impose a 21 percent WHT and provide information to authorities is not prohibited by Article 56 of the TFEU. He claimed that although the tax laws in Italy are comprehensive, they cannot just be referred to as "technical regulations."
According to Szpunar, "the withholding of tax at source is a universally used tax measure of a technical nature which not only makes it possible to ensure the effective collection of tax, but also constitutes a measure enabling increased simplification and legal certainty for taxpayers."
Additionally, he rejected the claim that the tax is unjust because it does not specifically tax Airbnb but rather all Italian real estate.
Szpunar claims that if the intermediary does not have a permanent establishment, European law does preclude national legislation when it comes to the appointment of a tax representative.
He claimed that "obligation to appoint a tax representative constitutes a disproportionate restriction on the freedom to provide services."
In 2014, the court also ruled in Commission v. Spain (case 678/11) that an obligation to designate a representative to share information and withhold tax violates Article 56 of the TFEU because it is an excessive restriction.
After Airbnb challenged the law in the Regional Administrative Court of Lazio in 2019, the Italian Council of State referred the most recent case to the CJEU.
The case offers the court the chance to make a decision regarding the tax treatment of services offered through online platforms, which other EU nations may implement in response to challenges with taxing the digital economy.
Since Italian officials requested the CJEU's opinion in September 2019, internal tax teams have waited more than two years for the case to be resolved. In April 2022, Airbnb attempted to have Belgian legislation requiring it to provide information to authorities rejected by the court.
According to a head of tax at a Milan-based telecommunications company who is keeping track of the case, the court's decision will also be important for other platform providers' routine compliance activities.
"This is an interesting case as it could also relate to requirements in DAC7," she said.
EU regulations are established by Directive 2021/514 (DAC7) for platforms to report online sellers' income to local authorities.
Szpunar's viewpoint and the impending court decision may have repercussions for the DAC7 reporting regulations, which will take effect in all EU member states in January 2023.
Platform providers, for instance, might be indirectly exempted from DAC7's local reporting requirements if they have little to no tax presence and no representative in Italy.
Airbnb officials issued a public statement in response to the court's recent decision, saying, "Airbnb wants to be a good tax partner and we support a consistent approach to information sharing."
For this reason, they continued, "we welcome the agreement by EU member states on a common tax reporting framework for digital platforms under DAC7."
Based on other aspects of the case, taxpayers are trying to set up risk-averse transactions. Because of EU regulations requiring taxpayers to exercise due diligence when applying a specific tax treatment, the risk to Italian WHT liabilities is insurable. Transactions that are underwritten by a broad policy could confirm taxpayers' positions and the methods by which they might be supported in the event of an audit.
"Most companies in the technology, media, and telecoms sector will have some insurance policy to cover WHT issues, since they have come up so often in recent years," according to Metta.
According to sources, the court battle between Airbnb and the Italian tax authorities will continue after the upcoming decision. If there is still no legal remedy available under national laws, the Italian court retains the right to revise its questions for the CJEU and begin a new preliminary ruling procedure under Article 267 of the TFEU.
By fLEXI tEAM