On 22. December 2022, the Court of Justice of the EU (CJEU) issued a decision in case C 83/21 regarding a preliminary inquiry made in the context of a dispute between Airbnb Ireland UC plc and Airbnb Payments UK Ltd, on the one hand, and the Agenzia delle Entrate (tax administration, Italy), on the other hand. The inquiry concerned the legality of rules of Italian law relating to the tax treatment of brokerage services in the short-term rental of real estate.
- The dispute in the main proceedings and preliminary questions
The subject of the case is a request for a preliminary ruling made on the basis of Article 267 TFEU by the Consiglio di Stato (Council of State, Italy).
The reference for a preliminary ruling concerns the interpretation of Article 1(5)(a) of Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, and in particular electronic trade in the internal market (Directive on electronic commerce), Article 2(3) of Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market, and Article 1(1)(e) ) and f) of Directive (EU) 2015/1535 of the European Parliament and of the Council of September 9, 2015, establishing a procedure for the provision of information in the field of technical regulations and rules regarding information society services, as well as Article 56 and Article 267, third paragraph of the TFEU.
The request was made in the context of a dispute between Airbnb Ireland UC plc and Airbnb Payments UK Ltd, on the one hand, and the Agenzia delle Entrate (Tax Administration, Italy), on the other hand, concerning the legality of rules of Italian law relating to the tax treatment of brokerage services for short-term rental of real estate.
- The Consiglio di Stato (Council of State, Italy) has decided to stay the proceedings in the dispute pending before it and to refer the following questions to the Court for a preliminary ruling:
1) How should the expressions “technical regulation” of information society services and “service rule” of information society services contained in Directive 2015/1535 be interpreted and, in particular, should these expressions be interpreted as including tax measures that do not aim to directly regulate the specific service, but are of a nature to regulate the specific exercise of the activity within the Member State, imposing more specifically on all providers of mediation services in relation to real estate auxiliary and instrumental obligations for the effective collection of taxes owed by landlords,
2) a) Does the principle of freedom to provide services contained in Article 56 TFEU, as well as the analogous principles arising from Directives 2006/123 and 2000/31, permit a national measure which provides for real estate agents operating in Italy , including for operators not established in the country and providing their services online, obligations to collect the data related to the short-term rental contracts concluded with their mediation, and their subsequent communication to the tax administration, in order to collect the direct taxes payable by the users of the service?
- b) Does the principle of freedom to provide services contained in Article 56 TFEU, as well as the analogous principles arising from Directives 2006/123 and 2000/31, permit a national measure which provides for real estate intermediaries operating in Italy, including and for the operators, not established in the country and providing their services online, who participate in the payment stage of the short-term rental contracts concluded with their mediation, the obligation to make a deduction from these payments and then transfer it to the state budget, in order to collect of direct taxes payable by users of the service?
- c) If the previous questions are answered in the affirmative, can the application of the principle of freedom to provide services contained in Article 56 TFEU, as well as the analogous principles arising from Directives 2006/123 and 2000/31, still be limited in compliance with European Union law by national measures such as those described in letters a) and b) above, due to the ineffectiveness otherwise of the tax deduction related to the direct taxes payable by the users of the service?
- d) Can the application of the principle of freedom to provide services contained in Article 56 TFEU, as well as the analogous principles arising from Directives 2006/123 and 2000/31, be limited in accordance with Union law by a national measure which imposes of intermediaries not established in Italy in relation to real estate, the obligation to appoint a tax representative, obliged to fulfill on behalf of and at the expense of the intermediary not established in the country the national measures described in letter b), given the ineffectiveness otherwise of the tax deduction related to direct taxes, payable by users of the service?
III. How was the legal issue until now?
Airbnb is a global company that operates the eponymous platform for intermediation of properties on the Internet, facilitating the connection, on the one hand, of landlords offering accommodation and, on the other hand, persons looking for this type of accommodation, Airbnb collects the payment for providing accommodation by the client when renting the property and transfers this payment to the landlord, if there was no dispute on the part of the tenant. An Italian law from 2017 established a new tax regime for short-term non-commercial property rentals. This law applies to contracts for the rental of residential property by natural persons outside the scope of commercial activity for a maximum period of 30 days, regardless of whether they are concluded directly with the tenants or through the participation of intermediaries who, like Airbnb, operate through online platforms.
From 1 June 2017, income from such leases – where the respective owners have opted for this preferential rate – is subject to a withholding tax of 21% payable to the Treasury and the details relating to the leases, must be handed over to the tax authority. When receiving rents or participating in their collection, persons who act as real estate agents must, as taxable persons, withhold 21% of the amount of rents and pay them to the treasury.
Foreign persons who do not have a permanent residence/address in Italy are obliged to appoint a tax representative in their capacity as taxable persons. Airbnb Ireland UC and Airbnb Payments UK Ltd, which belong to the global Airbnb group, brought an action to overturn the decision of the director of the tax authority to apply the new tax regime.
In the decision mentioned above, the CJEU held that the three obligations introduced in 2017 in Italian law fall within the area of taxation and are therefore excluded from the scope of certain directives invoked by Airbnb. Thus, the Court examines the legality of the three measures solely in the light of the prohibition to restrict the freedom to provide services within the Union, provided for in Article 56 TFEU.
- First of all, it notes that the obligation to collect and communicate to the tax authorities data related to rental contracts concluded after ownership mediation applies to all third parties, whether they are natural or legal persons, regardless of whether they are resident or established in that territory and whether they operate by digital means or by other means of connecting the parties. The Court concludes, in accordance with case law, that such an obligation does not contradict the prohibition provided for in Article 56 of the TFEU, as it is applicable to all operators exercising their activity on national territory.
- Secondly, the obligation to withhold tax also falls on both providers of real estate brokerage services established in a Member State other than Italy, as well as on companies established in Italy. Therefore, the Court excludes that this obligation can be considered as prohibiting, hindering or making less attractive the exercise of the freedom to provide services.
- Thirdly, however, the obligation to appoint a tax representative in Italy applies in turn only to certain providers of real estate brokerage services without a permanent establishment in Italy. As this obligation requires them to take steps but also bear the costs of paying this representative, such restrictions cause such operators an obstacle of such a nature as to deter them from providing real estate brokerage services in Italy, in any case in the way they wish to do it. This obligation must therefore be regarded as a restriction on the freedom to provide services prohibited in principle by Article 56 TFEU. Although this tax measure pursues the legitimate objective of ensuring the effective collection of the tax, which may justify a restriction on the freedom to provide services, it nevertheless goes beyond what is necessary to achieve that objective.
Moreover, the fact that the tax authority has already received information about the taxpayers facilitates its supervision and therefore contributes to the disproportionate nature of the obligation to appoint a tax representative. It follows that the obligation to appoint a tax representative contradicts Article 56 of the TFEU.
The decision of the court
For the reasons set out above, the Court decides that Article 56 TFEU must be interpreted in the sense that:
– firstly, it allows Member State legislation obliging providers of real estate brokerage services, regardless of their place of establishment and the manner in which they are involved, as regards the letting of real estate for no more than 30 days , located in the territory of that Member State, to collect and then communicate to the national tax administration the data related to the rental contracts concluded as a result of their mediation and if these suppliers collected the rents or the corresponding consideration or participated in their collection, withhold at source the amount of tax due from the sums paid by the tenants to the landlords, and pay this tax into the state budget of the said member state,
– secondly, it does not permit the legislation of a Member State obliging providers of real estate brokerage services as regards the letting for no more than 30 days of immovable property located in the territory of that Member State, where those providers have collected the rents or the corresponding consideration or have participated in their collection, and reside or are established in the territory of a Member State other than that of taxation, to designate a tax representative who resides or is established in the territory of the Member State of taxation.
- How is the legal issue in Bulgaria?
According to Bulgarian legislation, certain taxes (patent tax, or personal income tax, or corporate tax, or VAT) and insurance contributions are due for the short-term provision of real estate through online platforms. Unlike long-term rentals, where usually the costs of maintaining the home, utility bills and minor repairs are borne by the tenant, in short-term renting through platforms such as Airbnb, Booking and the like, the activity is defined as hotel accommodation and for this reason the tax obligations are different. In most cases, this activity is defined as commercial within the meaning of the Commercial Law (TC) and is subject to mandatory VAT registration for the so-called supplies of services for which the tax is chargeable to the recipient.
In Bulgaria, platforms such as Airbnb, Booking and the like do not have the obligation to withhold taxes, nor to declare them. This is the duty of every landlord of a property.
Short-term rental of property through online platforms necessarily requires special registration under the VAT Act. This is because the activity carried out by the lessor of the property receives intermediary services from foreign counterparties (platforms such as AirBnB, Booking and the like), i.e. is the recipient of a taxable supply of a service with a place of performance on the territory of the country, provided by a foreign person (the online platform), which is not established on the territory of the country. According to Art. 82, paragraph 2, item 3 of VAT, when the supplier is a taxable person who is not established on the territory of the country and the delivery has a place of performance on the territory of the country and is taxable, the tax is required from the recipient on the delivery at supply of services – when the recipient is a taxable person under Art. 3, para. 1, 5 and 6.
For this purpose, the intermediary must submit an application for registration on the basis of Art. 97a of the VAT. From this moment on, obligations arise for the intermediary to submit monthly reports-declarations for VAT. When registering on the basis of Art. 97a of the VAT, only the received supplies of intermediary services will be subject to VAT, and a tax rate of 20 percent will be applied to them. To charge the tax on these supplies, the person should issue a report no later than 15 days from the date on which the tax on the supply became due.
Taxation of the income/income from this activity depends primarily on the status of the person performing it, namely:
- Natural person, incl. and sole trader. After the changes in the tax legislation, which are effective from 01.01.2020, the income from this activity is mainly taxed with patent tax. In the event that the person does not meet the conditions for taxation with patent tax, he is taxed according to the Law on Taxes on the Income of Individuals (PIT).
- Legal entity – 10% corporate tax.
In turn, patent tax is applicable to natural persons who:
⇒ have an annual turnover of less than BGN 100,000 and
⇒ are not registered under VAT, with the exception of registration for the supply of services under Art. 97a and for intra-community acquisition under Art. 99 and Art. 100, para. 2 of the same law and
⇒ carry out a precisely defined (patented) activity, namely – letting for use accommodation places with no more than 20 rooms, categorized with one or two stars or registered under the Tourism Act.
Regardless of whether the activity of short-term rental of property through online platforms is subject to patent tax or personal income tax, insurance contributions are due for it – for social security, additional mandatory pension insurance in a universal pension fund and health insurance.
