Week in Insights: Italy’s DST Dilemma Shows Global Policy Matters

Italy’s digital services tax is a contentious issue with trade partners, including the US. Washington has accused Rome of obliquely targeting US tech companies such as Alphabet Inc., Amazon.com Inc., and Meta Platforms Inc. through arbitrary revenue thresholds.

Introduced in 2019, the Italian DST imposed a 3% tax on digital revenue generated by companies exceeding 750 million euros ($794 million) in revenue globally. This included many US companies, which opponents of the tax suggested were unduly burdened. The Italian government had framed the policy as a neutral, revenue-generating measure, but the tax prompted threats of retaliatory tariffs from both President Joe Biden and President-elect Donald Trump.

To counter these allegations and avoid a trade war, Italy announced this month that it has broadened the DST’s scope to include smaller businesses—eliminating the previous revenue threshold. Italian Minister of Economy and Finance Giancarlo Giorgetti characterized the move as an attempt to dispel claims of discrimination. But the US has called for a complete abolition of the tax and might not be swayed by this measure.

The OECD’s Pillar One framework aims to allocate profits more equitably across jurisdictions and obviate the need for DSTs and similar taxes. But disagreements between major players, including the US, India, and China, have left individual countries to pursue unilateral solutions.

Italy’s predicament stems from the lack of meaningful global policy. Countries must address domestic revenue needs and global tax fairness while appeasing key allies and trading partners. It’s uncertain whether Italy’s recent recalibration will succeed, especially given the possibility that the incoming Trump administration will take a more hardline stance on trade.

Regardless of the outcome, tensions likely will remain high as long as broader, international reform remains elusive.

—Andrew Leahey

Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts analyzed clashes over digital services taxes, benefits and pitfalls of partnership debt restructuring, and more.

The Exchange—It’s where great ideas on tax and accounting intersect.

—Curated by Daniel Xu

Insights

Crowe’s Zachary Robbins, Jacob Garcia, and Kristen McClellan say businesses should explore robust unclaimed property policies and voluntary disclosure in response to growing state enforcement.

RJS Law’s Sam Imandoust and Kaveh Imandoust analyze California’s extension of the use tax exemption for medicinal cannabis donations, saying political support and recent tax data bode well for another renewal in 2030.

Moss Adams’ Laura Theiss, Christopher Hanna, and Jackie Noland say that with careful planning, partnerships can mitigate adverse tax consequences stemming from debt modifications.

Davies’ Ian Caines, Sabina Han, and Michael Kandev examine the structure of Canada’s digital tax law, saying that concerns of potential tax treaty violations are unwarranted.

Colin Biggers & Paisley’s Amy Liu reviews ATO guidance on thin capitalization and debt deduction creation rules, saying that multinational companies will need a comprehensive transfer pricing approach.

Columnist Corner

Technically Speaking design by Jonathan Hurtarte/Bloomberg Tax

Creating a separate tax-exempt classification for politically active social welfare groups would help lessen dark money’s influence, Andrew Leahey argues in his latest Technically Speaking column, adding that “the catchall status of 501(c)(4) as a tax code section betrays the overall lack of clear and enforceable standards for regulating these organizations effectively.”

Disclosure requirements for political contributions, spending limits, and dedicated federal oversight could come with the new designation, strengthening its impact on campaign finance transparency, Andrew says. Read More

News Roundup

Amgen, Coke Set Aside Only Fraction of Billions They May Owe IRS

Amgen Inc. may ultimately have to pay as much as $10.7 billion in taxes, interest and penalties to the IRS—nearly as much as the company’s total profits for the past two years. Coca-Cola Co. may owe the IRS up to $16 billion—about as much as its earnings for the past year and a half. Airbnb Inc. may have to pay $1.9 billion. Read More

SALT Cap Opponents Empowered in Narrow House Majority Next Year

A dwindling but vocal bloc of blue-state House GOP members is poised to challenge the limit on state and local tax deductions next year. Read More

Speedy Action on Biofuels Tax Credit Extension Is Looking Dim

The biofuels industry likely won’t get an extension on blenders tax credits that they say would alleviate frustration and delays in the marketplace created by the lack of rules for its replacement credit. Read More

Big Business Calls on Congress to Ward Off Global Tax Spike

Multinationals want US lawmakers to extend low tax rates on foreign-earned income as they tackle competing priorities in putting together a mammoth tax bill next year. Read More

Tax Management International Journal

As Chilean tax authorities increase audits, MNEs should consider using MAPs and APAs under the newly ratified US-Chile income tax treaty to avoid double taxation and achieve tax certainty, say KPMG’s Felipe Flores, Marco Macías, Cameron Taheri, and Jessie Coleman.

Tax Management Memorandum

For digital asset owners who haven’t maintained clear records but must comply with forthcoming filing requirements from the IRS, a temporarily available global allocation safe harbor option will simplify matters until specific unit allocation requirements kick in, explains Rustin Diehl of Allegis Law.

Career Moves

Morgan Vail joined Ashurst as a partner in its tax team in Paris.

Peter Rogers joined Bracewell as as a partner in its tax department in Dallas.

Ryan Parisi joined Harter Secrest & Emery as counsel in its tax assessment practice.

Richard Peterson joined Stradley Ronon as a partner in its tax practice in Chicago.

Chris Cunningham was promoted to vice president of tax at Granite Peak Associates.

Lara Abrash, Luis Aguilar, Pratik Bhatt, and Paul Quinsee will join the Financial Accounting Foundation Board of Trustees on Jan. 1, 2025.

If you’re changing jobs or being promoted, send your submission to TaxMoves@bloombergindustry.com for consideration.