The European Court of Justice's decision on the Italian 'AirBnB tax'

In 2017, Italy introduced a specific tax provision regarding short-term tenancies having a duration of not more than 30 days (as per Article 4 of Legislative Decree n. 50 of 2017, dubbed also as 'AirBnB tax') aimed at facilitating the collection of tax due on rental income of Italian residential properties let on a short-term basis in cases where there was an intermediary between the landlord and the end tenant. 

The 2017 tax legislation applies to short-term tenancies between individuals (provided certain conditions are met, including the residential properties being leased outside a business activity) either entered into directly by the landlord and tenant or concluded via an intermediary, eg via an estate agent or an internet portal.  The law provides a very broad definition of intermediaries, including not only those who are registered as such in Italy, but also individuals or entities who act as de facto intermediaries, whether they are in Italy or abroad, and whether or not they have a permanent establishment in Italy.

The law imposes a series of obligations on the intermediaries, including the obligation to collect and forward the details of the short-term tenancies to the revenues on a regular basis and to apply a withholding tax of 21% on the gross rent before paying net rent proceeds over to the landlord.  Where the intermediary is non-resident but has a permanent establishment in Italy, the permanent establishment has to comply with the above obligations.  If there is no permanent establishment, the foreign intermediary will have to appoint a tax representative in Italy in order to fulfil its role and obligations. 

It is precisely to dispute these obligations that Airbnb brought an action before the Italian courts against the Italian Tax Authorities which ended up with a request of preliminary ruling before the European Court of Justice.  

The ECJ was asked to considered the lawfulness of the obligations laid down in the AirBnB tax vis-à-vis Article 56 of the Treaty on the Functioning of the European Union (TFEU) TFEU, which prohibits EU Member States from restricting the freedom to provide services.  The ECJ found both the obligation to collect and forward the details of short-term lettings to Italian revenues and the obligation to withhold tax as not discriminatory and therefore compliant with Article 56 TFEU.  However, the ECJ did hold that the obligation to appoint a tax representative (arising when the foreign intermediary collects or receives rent on behalf of a landlord) was 'a restriction on the freedom to provide services, prohibited, in principle, by Article 56 TFEU'.  The ECJ noted that, as the obligation to appoint a tax representative is not imposed on Italian resident intermediaries or on non-Italian resident intermediaries with an Italian permanent establishment, such obligation creates on intermediaries without an Italian permanent establishment a 'hindrance of such kind as to deter them from providing property intermediation services in Italy'. 

Further to the ECJ's decision, the Italian courts (namely, Consiglio di Stato), will have to rule in favour of the Italian Tax Authorities.  The Italian Revenues will therefore be able to collect any tax due on the basis of the provisions set forth in the 'AirBnB' tax law, and intermediaries such as Airbnb and other online portals will be subject to the reporting and withholding tax obligations whenever they collect and receive rent going forward.  However, it is not clear how, further to the ECJ's decisions, the non-Italian resident intermediaries without a permanent establishment in Italy will fulfil their withholding tax obligation, given the ECJ decision that these intermediaries do not have to have an Italian tax representative.