• Service: Tax, Global Indirect Tax, Global Transfer Pricing Services, Global Compliance Management Services, International Tax
  • Type: Business and industry issue, Regulatory update, Survey report
  • Date: 5/1/2012

Country perspectives on taxing the cloud – Italy 

Taxation of cloud computing services is a relatively new issue in Italy, and there are no specific tax rules, tax authority guidance or academic analysis regarding the potential tax issues for such new technologies. Therefore this analysis is based on currently available information and is likely to change once specific tax rules or guidance is issued.

Characterization of transaction

In general, fees for cloud computing services should be treated as services costs, although it is important to determine which type of fees can be characterized as royalties.

Under Italian tax law, royalties are defined as remuneration of any kind received for the use of, or the right to use:

  • copyright of literary, artistic or scientific works, including cinematograph films and software
  • patents, trademarks, designs or models, plans, secret formulae or processes, or information concerning industrial, commercial or scientific experiences
  • industrial, commercial or scientific equipment.

As a general rule, if no copyright is transferred to the buyer (i.e. the Italian company) then the amount paid should be considered as a service fee rather than a royalty payment.

Accordingly, if the buyer (Italian resident) is entering into an agreement with a cloud service provider (non-Italian resident) for accessing software stored on the cloud, the payment should normally be considered to be a service fee.

In this respect there is no distinct tax treatment between a public and a private cloud service.

Corporate tax

Revenues for resident cloud service providers should be taxed in Italy, generally at 31.4 percent (27.5 percent corporate income tax plus regional tax ordinarily at 3.9 percent).

The service fees paid by the Italian buyer are normally fully deductible for corporate tax purposes.

Business income produced in Italy by a non-resident company should not be taxed in Italy unless the non-resident company has a permanent establishment (PE) in Italy. Accordingly, service fees paid by the Italian buyer to the non-resident cloud service provider should not be taxed in Italy (as they qualify as business income).

If the payments to the non-Italian cloud service provider are deemed as royalties according to Italian tax rules, then the withholding tax rate applied may vary:

  • WHT should be zero percent if the royalty payment qualifies as a benefit under the EU "Interest and Royalties" directive 2003/49/EC.
  • If the cloud service provider is resident in a non-EU country not covered by a double tax treaty at 30 percent, then WHT applies; such WHT is generally applied to 75 percent of the gross amount of the payment, resulting in an effective tax rate of 22.5 percent.
  • If the cloud service provider is resident in a state covered by DTT, then the WHT should be reduced by between 5 percent and 10 percent.

Permanent establishment

The domestic definition of a permanent establishment (PE) follows the wording of Article 5 of the Organisation for Economic Co-operation and Development (OECD) and provides that "computers and auxiliary equipment for the collection of the information and the transmission of data for the sale of goods or services will not, per se, constitute a permanent establishment".

The mere fact that a cloud platform is accessed by and in different countries (i.e. Italy) should not be expected to create, per se, a PE therein.

On the other hand, the server on which the cloud platform is stored and through which it is accessible is a piece of equipment having a physical location; such location may thus constitute a fixed place of business of the enterprise that operates the server and thus be considered a PE.

Related party transactions

In a private cloud scenario (i.e. a non-resident cloud service provider that provides cloud services to an Italian resident related party), it is important to analyze the potential transfer pricing issues.

Italian tax law contains a set of rules that allow for the adjustment of transfer prices. Statutory documentation is not required but is highly recommended for all transactions, as the tax authorities expect documentation to exist; in event of a tax audit, penalties may be avoided if the tax payer has such documentation available and has communicated its existence to the tax authority.

Indirect tax

It is important to gain clarification from the tax authority on Value Added Tax (VAT) treatment of cloud services.

Business-to-business transaction:

  • If the supplier is an Italian VAT-registered person and the buyer is an Italian VAT-registered person, the transaction should not be subject to Italian VAT.
  • If the supplier is a non-Italian resident VAT-registered person, and the buyer is an Italian VAT-registered person, the transaction should be subject to VAT in Italy at the standard rate of 21 percent through the reverse charge mechanism.
  • If both buyer and supplier are Italian VAT-registered persons, the transaction should be subject to VAT at 21 percent.

Share this

Share this

Follow us

follow us on Twitter
follow us on Linkedin


Stefano Cervo

KPMG in Italy

+0039 06 809 631