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Thursday, June 13, 2024 | Back issues
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Airbnb fought the rental tax rules in Italy, and the rules won

Italy's tax regime for short-term rental platforms has been in force since 2017, but the European Union may finally be catching up. It announced new rules earlier this month aimed at curbing tax avoidance.

LUXEMBOURG (CN) — The European Union’s highest court ruled Thursday in favor of Italy, which requires Airbnb to collect a rental income tax and share information with tax officials. 

Italy, a country that receives more than 65 million tourists each year, already charges a tourism tax to help maintain public infrastructure. The tax is typically levied per person per day and is collected by hotels. While private property owners are supposed to disclose short-term rental income on their taxes, most do not. 

Indeed the southern European country has seen a decrease in tax collection as the San Francisco-based Airbnb has grown in popularity, with tourists increasingly booking accommodation by way of the home-sharing app.

To crack down on those dodging taxed in the rental market, lawmakers in Rome in 2017 passed legislation requiring Airbnb to collect a 21% flat-rate tax — in Italian, a cedolare secco or dry coupon — on all short-term rentals. The legislation also requires the company to report the financial details of all rental transactions to the Italian tax authorities. 

Airbnb sued, saying it is protected by the EU's guarantee that companies can freely provide services in any of the 27 member states.

Italy's Council of State, which has jurisdiction over the country’s administrative authorities, referred the dispute to Luxembourg where it prevailed Thursday.

“The need to ensure the effective collection of tax constitutes an overriding reason in the public interest capable of justifying a restriction on the freedom to provide service,” the ruling states.

In one concession to the house-sharing platform, the Second Chamber of the European Court of Justice also determined that Italy's requirement for the appointment of a tax representative would create an undue burden on companies like Airbnb. 

Thursday's opinion, issued on the last day before the court closes for its Christmas holiday, echoes a July recommendation from a court adviser. Advocate General Maciej Szpunar concluded that EU rules broadly allow countries to require companies to withhold taxes. 

"The withholding of tax (or a tax deduction) 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," the Polish judge wrote in his nonbinding opinion (parentheses in original).

Three years earlier, the court found that Airbnb is an information service, not a real estate company, and thus exempt from licensing rules for real estate agents. The Court of Justice has mostly sided with countries trying to regulate the platform. In 2020, the court found that affordable-housing interests justify limits in Paris on short-term rentals.

Last month, the European Commission presented proposed new rules for short-term rentals across Europe. The new regulations would create streamlined registration procedures in an effort to make operators more trackable and increase transparency. The company welcomed the new proposal. 

Some 4 million people rent locations on Airbnb, according to the company, with 1 billion guests staying in properties every year. One million of those listings are in the European Union. 

“Airbnb is a good partner on tax and we are already supporting the correct payment of Host income tax by implementing the EU’s common tax reporting framework,” the company said in an email Thursday, noting that it awaits the final ruling from the Italian court.

The case will now head back to Italy, where Italian judges will implement the Court of Justice decision. 

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Categories / Appeals, Business, International

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