LUXEMBOURG (CN) — An adviser to the European Union’s highest court said Thursday that Italy can force Airbnb to collect a rental income tax and share information about its transactions with tax officials.
In his nonbinding opinion for the European Court of Justice, Advocate General Maciej Szpunar found that an Italian law aimed at cracking down on tax dodging in the rental market is compatible with EU law.
The case was referred to the Luxembourg-based court by the Italian Council of State, which has jurisdiction over the country’s administrative authorities, after Airbnb sued to stop a 2017 law known as the “Airbnb tax" that forces the collection of rental taxes.
The southern European country charges a tourism tax to help maintain the public infrastructure used by more than 65 million tourists who visit the country each year. The tax is typically levied per person per day and is collected by hotels. As Airbnb has grown in popularity, the country has seen a decrease in tax collection as tourists use the home-sharing app to book accommodation.
In 2017, lawmakers in Rome 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 law also requires the company to report the financial details of all rental transactions to the Italian tax authorities. The tax isn’t necessarily new - under previous law, property owners were supposed to disclose short-term rental income on their taxes but most did not.
Airbnb refused to comply with the law, arguing it violated the EU's guarantee that companies can freely provide services in any of the 27 member states. The San Francisco-based company also argued that its digital platform is already providing a stronger paper trail than traditional Italian hotels, where some 70% of transactions are conducted in cash.
Szpunar disagreed, finding 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 advisory opinion. (Parentheses in original.)
He also dismissed the argument that the tax is discriminatory, finding the law doesn’t tax Airbnb directly but instead taxes Italian real estate.
“The tax regime at issue does not concern the taxation of Airbnb’s services, but the taxation of the rental of immovable property located in Italy which underlies those services," Szpunar wrote.
However, the court adviser found that a part of the law requiring Airbnb to appoint a tax representative created an undue burden on the company.
In a statement, Airbnb said it has taken note of the opinion.
“We await the decision from the Court. Airbnb wants to be a good partner on tax and we support a consistent, standardized approach to information sharing,” the company said, referring to the forthcoming binding ruling from the European Court of Justice.
The court is not obliged to follow the opinions of its advocates general but does in about 80% of cases. A final decision is expected in the coming months.
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