Italian Council of State refers Airbnb’s appeal to the ECJ
Airbnb has recently written to its hosts to say that the Italian Council of State has decided to refer to the European Court of Justice the issues raised in Airbnb’s appeal against the ruling of the Lazio Administrative Court (TAR del Lazio) upholding the legality of Article 4 of Decree-Law No 50/2017 Decree Law 50/2017, introducing the “Airbnb tax”. The Council of State is consultative body for matters of administrative law and ensures the legality of public administration.
The referral procedure is a procedure whereby an Italian court can refer a matter or matters of law to the European Court, for an opinion or ruling of the European Court as to how EU law impacts on a particular case.
The disputed Decree
The Italian Decree Law, part of which Airbnb contests, first of all confirmed that the flat rate tax known as the “cedolare secco” – literally “dry coupon” on gross rents introduced as alternative to normal income and registration taxes on rentals contracts is the default regime applicable to landlords who rent out residential property on a short term (less than 30 days) basis, including, for example, via online portals such as Airbnb. The cedolare secco is a flat rate tax – 21% on the gross rent due under the contract.
The Decree Law also introduced the requirement for agents and intermediaries to withhold the 21% flat tax on payments received from tenants, and deducting this amount from payments to landlords, prior to paying the 21% so withheld to the Italian government.
The Council of State in its Ordinance (no. 6219 of 18 September 2019) has “suspended” the Airbnb tax and it will be up the European Court to decide whether or not the obligation to apply the 21% withholding tax by the agent/online portal is legitimate or not.
Pending the decision of the EU Court of Justice landlords will still be required to pay tax on rental income following year end. But the agent or intermediary for the time being will not be udner a legal obligation to withhold the tax in advance of pay-outs to landlords.
For more information on the taxation of rental income from property situated in Italy see this post.
Airbnb are at pains to point out they refuse to withhold tax on solid legal grounds. They also point out that as a digital platform they are actually encouraging landlords to pay tax on their income simply by providing a digital platform supporting responsible taxpayers. They state that “In a country like Italy, where rent on holiday homes 7 times out of 10 is still paid in cash, we are convinced that digital should be enhanced, not harassed with ad hoc laws which are difficult to apply.”
Airbnb state that the postponement will reopen the debate between institutions and operators for a more modern regulatory framework, fair and applicable to all – including portals that also allow cash payments.
Airbnb refused to comply with the law, and if they ultimately lose the argument face potentially a heavy tax and penalty cost. It is reported that from the time the law came into force in September 2017 until today Airbnb has collected a sum equal to more than 2 billion euros in rents in Italy, failing to withhold and pay to the Revenue Agency at least 420 million euros.
Airbnb’s Legal Argument
Airbnb’s objections to the requirement to withhold tax are principally twofold, one procedural and one substantial:-
- The procedures requiring the “intermediary” to withhold tax introduced by Decree-Law 50/2017 was adopted in breach of an obligation laid down in Articles 4 and 5 of Directive No 1535/2015/EU for the Italian Government to notify the European Commission in advance of any draft technical regulation concerning services such as those provided by Airbnb. The absence of prior notification of the new legislation to the Commission therefore makes that legislation fundamentally inapplicable.
- The legislation in question imposes on the “intermediary” a series of reporting and tax compliance obligations, including, as regards not residents and foreign businesses without an establishment in Italy, the requirement to appoint a tax representative. In the view of Airbnb this, in addition to being unreasonable and disproportionate, has the effect of jeopardising the functioning of the internal market and arbitrarily discriminates against Airbnb. In particular, these provisions impede the freedom to provide the services supplied by Airbnb (protected by Article 56 TFEU), since operators of online platforms such as Airbnb will be required to act as income tax collector assuming burdens and responsibilities which are completely unrelated to the service it provides.
- In Airbnb’s view there are no public interest reasons which can justify the introduction of restrictions at national level against the fundamental freedom laid down in Article 56 of TFEU. Certainly the measures cannot be justified by a general need to combat tax evasion in the property sector.
Airbnb do not seem to be complaining about the fact that the Italian Government did not make any provision for remunerating Airbnb for its tax collection service. However reading between the lines Airbnb and other similar operators are obviously upset about the lack of notice and time for preparation given to them by the Italian legislator, as well as the fact that they are expected to act as unpaid tax collector.
The imposition of a requirement to withhold tax on the rent paid by a tenant, which is then to be paid to the tax authorities, would negatively impact Airbnb compared to other operators providing a similar service in the same property brokerage market, using alternative methodologies and who, in particular, do not get involved with the payment of rents. Indeed Airbnb state that the very that their online platform would be subject to a withholding tax obligation could drive landlords and tenants to other form of arrangements, involving payment in cash thereby illegally escaping any liability to tax.
The Hotelier’s lobby
Federalberghi, the Italian hoteliers’ industry association have been lobbying hard for Airbnb and other online platforms to comply with the law. They have conducted a number of studies which show, unsurprisingly, the significant growth in Airbnb type letting arrangements. Their point of view is that the digital platforms actually increase the possibility for tax evasion as private landlords simply do not bother to report rental income and pay over the tax due.
The opposing views
In the writer’s opinion it is to be hoped that some form of agreement can be reached and that a wider framework covering not only the payment of taxes but also matters such as getting the authorisation to carry on lettings business via Airbnb or other online platform and reporting the details visitors to the Police authorities. Even Airbnb’s online guide to setting up as a private landlord in Milan for example, has a whole series of steps requiring visits to public authorities, telephone calls and snail mail. Procedures differ for every local authority, province and region around. Although some of the procedures can be done online, even they must be effected in a process that is totally separate from the Airbnb process .
However the wheels of justice grind as slow as the bureaucratic ones and the result of the proceedings before the European Court must now take their course.
It is an unfortunate spat. And there are different ways of viewing it. Are we facing a multinational colossus cocking a snoot at a sovereign Government refusing to obey the law? If so, it is an odd battle to pick. The tax in question is not tax on the multinational’s tax. Normally battles between States and Government concern profit shifting, base erosion and management fees or headquarter cost sharing arrangements. The tax in question is due by Airbnb’s clients. It is an argument about tax collection, not liability.
Or is this is a case of an EU Member State ignoring fundamental EU freedoms. But the EU world, especially the VAT world is full of examples of business being avoid to appoint a “representative” to chare and collect VAT. Of course for the State the advantage of VAT is that the business does not most of the legwork, and the Commission has been successful in certain areas in enabling businesses to account for the VAT due around the various member states .
However it is impossible to deny that at present compliance obligations for multi-national businesses around Europe are a hotchpotch requiring registrations and appointments of representatives is multiple countries, as member states continue squabble over taxing rights. These squabbles stand right in the path of businesses, especially business working in the digital economy looking to provide clients a seamless service from a single point in Europe.
Is it simply a question of Airbnb not wanting the additional costs of acting as tax collector. This viewpoint seems unlikely as Airbnb have entered into a number of voluntary agreements with local authorities and states, not just in Italy but around the world, for the collection of tourist and occupancy taxes.
And to be fair there does seem to have been a lack of consultation by the Italian government prior to the passing of the Decree Law which definitely smacks of a measure promoted by the hoteliers lobby seeking to defend their own commercial interests against an ever more threatening competitor.
Wait and See
Whatever the arguments we must now wait for the European Court to decide on this difficult matter. Whatever the outcome, for most of us we are only talking about the timing of paying tax, but it is a fascinating tussle, if somewhat unseemly between a multinational corporation and a sovereign government.
Avv Colin Jamieson
I translated Ordninance 6219 but didn’t see any mention of suspension of the original decree.
Good point. That is why I put “suspended” in inverted commas. I think that because judgment is suspended pending the ruling of the European Court, the efficacy of the legislation introducing the tax is also suspended by operation of law. But you would need to consult a lawyer more experienced than I in administrative law for confirmation, especially if you are an intermediary currently receiving rents to which the law applies. Airbnb seem to be treating the obligation as “suspended” in the interim and as I say in the article, they will face a significant tax and penalty liability if the ECJ rules in favour of the Italian government.
Hey Colin – great write up! I know I’m about 3 years late, but was trying to find out how the courts decided in this case. And your blog has been the clearest answer so far. As a non-lawyer, can you help me understand how the European court decided on this case? I’m curious if Airbnb is currently remitting taxes for all hosts in Italy? It sounds like in some of the language they were angling to only remit for non-professionals, which would exclude the majority of hosts in Italy since in Italy there isn’t a special license to differentiate between traditional professional (ie. hotel), professional host (ie. property manager who has mulitple listings on airbnb) and a citizen host with one listing that is their primary residence. Thanks for any help you can provide!
I see from an online legal website that the Italian case has not yet been decided on yet. An earlier case, relating to a Belgian tourist tax has just (April 2022) been decided, with the effect that Airbnb are obliged to supply client data to the Belgian authorities for the purposes of the collection of a regional tourist tax. Airbnb’s opponents in italy are claiming the Belgian case as a victory but we need to wait to for the decision of the European Court in the Italian case. The Belgian case turned on the communication of landlords’ details while the Italian one turns on whether Airbnb, and other platforms which do not, apparently, have a tax presence in Italy, are actually obliged to collect tax on rental income, deduct it from the rent and pay it over to the Tax Agency. Keep watching this space!
As far as I am aware neither Airbnb nor Booking.com are currently withholding and remitting tax on rental income received for Italian lettings while platforms run by businesses registered in Italy largely are. But this is a reflection of the very crux of the dispute – whether EU freedom of establishment rules prevent national governments from requiring businesses to register as tax “substitutes” withholding tax agents. For the time being we just need to wait and see what the Courts finally decide.