Regulating the internet giants: a proposal from the Italian Senate

by Simone Gasperin | @Giaspero

On 1st March 2018 IIPP hosted an event in the UK Parliament which brought together experts to discuss the regulation of the digital economy. In this blog, IIPP PhD student Simone Gasperin discusses the recent legislative proposal from the Italian Senate for a national “web tax”, which was presented at the event by Italian MP Massimo Mucchetti.

An important part of IIPP’s research is focused on exploring how innovation-led growth can also be inclusive growth. This includes examining policy instruments that enable a more equitable sharing of risks and rewards between the public and the private sector, particularly where innovations have occurred as a result of State funding and support.

Like many technological advances, public policies were key to the advent of the Internet. How to regulate and tax companies that benefit greatly from the Internet — particularly the “internet giants” such as Google, Facebook and Amazon — currently represents a major challenge for policymakers across the world.

One policymaker who has been taking this challenge seriously is Massimo Mucchetti, an outgoing member of Italy’s Senate of the Republic, and President of the Senate’s Industry Committee. Last week IIPP invited the Italian senator to the UK to present and discuss a recent legislative proposal from the Italian Senate which aims to create a more symbiotic relationship between national economies and multinational digital companies.

In his presentation, Mucchetti explained how multinational digital companies are operating today as the old oil companies did in the past. Almost all countries in the world are currently “data producers”, yet they are not adequately rewarded by the big digital companies that extract, “refine” and sell this new resource, generating huge profits.

This happens due to a combination of factors, including the diffused and immaterial nature of the data commodity and international tax rules that are biased towards “physical” permanent establishments.

But according to Mucchetti, data should be structured in ways that allow it to be a public good, not only a source of private profits. Based on this premise, the Italian Senate has recently elaborated a proposal which seeks to address tax avoidance and data exploitation by multinational digital companies. The proposal aims to make the first step towards the regulation of these new digital monopolies by establishing an effective system of taxation. As Mucchetti explained:

“Our citizens, who are the atomised and often unconscious owners of 21st century’s oil, could be represented by their national Governments, who can impose royalties on the use of this new raw material: a web tax on revenues.”

The three main pillars of the Senate’s proposal are as follows:

1) The State should be entitled to monitor, through its Revenue Agency, any financial transaction going out of the country in the form of payments for fully dematerialised services. In this way, governments will be able to better identify those multinational companies that generate significant revenues within the national jurisdiction but declare those earnings in another country with a low or null rate of taxation.

2) A stronger and more effective definition of “permanent establishment” should be adopted, meaning that a foreign entity should be considered as having a permanent establishment whenever it is extracting resources of any form from the country, not simply natural resources.

3) A “web tax” of 6% on the revenues coming from the selling of fully dematerialised digital services should be introduced. Problems related to the potential non-discriminatory nature of the tax would be avoided through the introduction of a tax credit of equal value for companies that have a physical presence in the country, and therefore abide by the national tax regime. This tax credit would be discounted from other taxes and pension contributions owed in Italy. As a result, only multinational companies without a permanent establishment (or a very light presence) would be impacted by the tax.

The proposal aspires to represent a step towards a “race to the top” in the regulation of multinational digital companies. According to Mucchetti, much needed international agreements will only be facilitated by national laws that respond to legitimate democratic concerns put forward by users and taxpayers within each jurisdiction.

To find out more information about IIPP’s work exploring how innovation led-growth can be more inclusive, visit the ‘Risks and rewards’ research page on IIPP’s website.