The order of seizure of 779 million euros (832 million dollars) from the offices of Airbnb, Inc. by the Prosecutor’s Office of Milan has been widely reported by the Italian media today. The seizure comes as a result of years of legal deliberation in Airbnb’s attempt to avoid taxes on their rentals.
Airbnb, an online real estate rental service from Ireland, managed to avoid paying a 21% “short-term rent” tax in force since 2017, opting for the legal process of appeal — an appeal which was denied earlier this year by the Italian State Court.
The amount calculated came from the Financial Police of Milan, which concluded that Airbnb failed to pay the aforementioned tax owed to the Italian state. It was calculated at 21% of the 3.7 billion euros (4 billion dollars) of rent payments Airbnb received over 2017–2021. As a result, Angela Laura Minerva, judge of the Court of Milan, ordered the seizure of 779 million and 453 thousand euros from Airbnb. In addition, three directors of Airbnb are under investigation.
The short-term rent tax was passed in 2017, specifically targeting short-term real estate rental services like Airbnb.
It applies explicitly to companies that connect people looking for real estate with people who have real estate units for rent, like Airbnb.
The law establishes that companies such as Airbnb, which rent for 30 days or less, are liable to withhold 21% of all rent payments they receive, as intermediaries between tenants and landlords. This amount must be paid to the Italian government. Additionally, Airbnb is required to send information about all of their contracts with renters to the government.
Against this tax ruling, Airbnb began an appeal process in 2019, claiming the Italian law contradicted EU law. Specifically, Airbnb’s lawyers cited an article from EU directive 2015⁄1535 that stated “barriers to trade resulting from technical regulations” are allowed only when they are an essential necessity and in the public interest. Airbnb argued that information on tenants and contracts is not an essential necessity for the company, since it is not headquartered in Italy. Additionally, they argued that these obligations were restrictive of their freedoms as a company, given the EU’s own stance on this, and that it would “distort competition” and unfairly harm their business.
In December 2022, the EU Court of Justice released a press statement arguing that there was no contradiction between the EU’s directives and Italian law. They clearly said that the obligation to withhold tax in no way “may be regarded as prohibiting, impeding or rendering less attractive the exercise of the freedom to provide services.” In other words, they concluded that the obligation to pay the tax or provide data on rental contracts was not infringing on public interest or freedoms at all.
In October 2023, the State Court of Italy officially denied Airbnb’s appeal, ruling that they are liable to pay the tax and that they are legally obligated to compensate the government in full.
The company has been profitable thanks in part to the tax system, according to their latest shareholder letter summarizing the third quarter of 2023. Airbnb declared 4.4 billion dollars in net income, including a tax benefit of 2.8 billion dollars allegedly “driven by the release of a valuation allowance on certain of our deferred tax assets.”
They also declared that 113.2 million “nights and experiences” were booked by travelers, and that their income has skyrocketed since 2019. Their appeal against the Italian tax obligation stated that it may “distort competition” and harm their business, however, it has done anything but that.
