Italy goes after Meta, X and LinkedIn in landmark tax payment case

Italian tax authorities have demanded Meta, X, and LinkedIn pay value-added tax (VAT) claims, according to a Wednesday Reuters report, citing four sources familiar with the matter. The case will become the first attempt in the European Union (EU) jurisdiction to apply VAT laws to social media platforms offering free services in exchange for user data.

Italy is seeking €887.6 million ($961 million) in taxes from Meta, €12.5 million from X, and around €140 million from LinkedIn. 

Per Reuters, the figures represent the entire period under investigation, which varies by company but spans from 2015-2016 to 2021-2022. Still, the current tax assessment only covers 2015 and 2016, as claims for those years are set to expire.

Why Italian tax authorities want social platforms to pay levies

The case hangs on a legal argument that when users sign up for platforms like Facebook, X, or LinkedIn, they are effectively engaging in a barter transaction. Under EU VAT law, taxable transactions require a supply of goods or services for consideration. 

Italian authorities are convinced that users are offering non-monetary consideration by providing personal data in exchange for access to social media platforms, making the transaction subject to VAT.

Investigations into Meta and X for alleged tax fraud had been previously reported, but the inclusion of Microsoft’s LinkedIn unit in the case was not publicly known until now.

Mark Zuckerberg and his team have yet to comment on case specifics, but they insisted they will cooperate fully with authorities in accordance with EU and local laws. The company also opposed the idea that providing access to online platforms should be subject to VAT. 

LinkedIn told Reuters that it had “nothing to share at this time.”  Elon Musk and X have not made any statement on the matter either.

Legal proceedings with big repercussions 

Legal and tax experts suggest that if Italy’s approach is upheld, it could impact several businesses that keep user data across the EU, including airlines, supermarkets, and publishers. Any company linking free services to data collection could face similar tax liabilities.

The three social media companies have 60 days to appeal before a judicial process can formally begin. If they request a settlement proposal from tax authorities, they will be granted an additional month, during which time three outcomes could follow.

One option is for the companies to challenge the claims in court, a process that could take up to a decade given Italy’s three-tiered judicial system. Another possibility is for the Italian Revenue Agency to drop its claim, either for technical reasons or due to political considerations. 

Alternatively, a partial settlement could be reached and payments made while Italy seeks a ruling from the European Commission on a more defined legal framework.

Italy freezes Starlink negotiations

Italy and Starlink Service LLC CEO Elon Musk have a good relationship, although it may turn sour soon because of the trade tariff wars between the EU and the US. Italian Defense Minister Guido Crosetto confirmed in an interview with La Repubblica on March 22 that Italy has halted negotiations with SpaceX over a potential Starlink agreement.

According to a Ukrainian local news outlet, European officials fear the US could use control over Starlink to twist the hand of Kyiv into decisions favoring Russia and a reported minerals deal with Washington.

On March 9, Musk denied that Starlink would be cut off from Ukraine, clashing with Polish Foreign Minister Radoslaw Sikorski over the legitimacy of these fears.

“To be extremely clear, no matter how much I disagree with the Ukraine policy, Starlink will never turn off its terminals,” Musk stated.

Earlier this year, the Italian government was supportive of working with Starlink, but political opposition derailed discussions. “It seems to me that everything has stopped … the topic has moved from Starlink to the statements of and about the person,” Crosetto said.

Negotiations are purportedly now on hold, and the Italian government wants security considerations in its defence contracts heard before making any deal. 

“When the controversy and the times have calmed down, there will be a technical approach,” the Italian Defence minister reckoned.

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