ECJ: Italian Short-Term Leases Counter EU Law

Feb 17, 2023 Benn-Ibler Rechtsanwälte

The duty to collect information and the withholding of tax under Italian national law for short-term leases are in conformity with EU law. However, the requirement for non-residents to appoint a tax representative is not, according to the European Court of Justice (ECJ).

In 2017, Italy introduced new tax rules for non-commercial short-term leases covering residential rental contracts with a maximum duration of 30 days that are concluded by individuals not involved in business activities. This includes both direct contracts concluded with lessees as well as contracts concluded via estate agencies such as Airbnb. Since 2017, the income from such rental contracts has been subject to a 21% deduction to be paid to the tax authorities. Furthermore, the pertinent data has to be submitted to the tax administration. Non-residents are additionally required to appoint a tax representative as the person responsible for their taxes.

Airbnb brought an action against this before an Italian court which then asked the ECJ to interpret several EU regulations with regard to this Italian tax law provision. The ECJ examined the legality of said provisions against the prohibition of restrictions on the freedom to provide services under Article 56 of the Treaty on the Functioning of the European Union (TFEU).

The ECJ did not take issue with the Italian requirement to collect data or to communicate pertinent data, as this applies to all economic operators active in Italy. The requirement to remit taxes cannot be regarded as a measure prohibiting, hindering, or making the provision of services in Italy less attractive. Indeed, the obligation to pay tax applies both to providers of real estate brokerage services established in member states other than Italy as well as to companies with business offices in Italy.

The ECJ, on the other hand, held that the obligation to appoint a tax representative in Italy, but only for certain providers of real estate brokerage services (specifically for those who do not have a permanent establishment in Italy), was an infringement of the prohibition on the free movement of services. Such an obligation imposes a burden which is likely to discourage economic operators from providing real estate brokerage services in Italy.

ECJ, C-83/21 (22.12.22)