Facebook parent company Meta META-Q faces a potential tax bill of around €870-million ($925-million) in Italy after prosecutors launched an investigation into the company, two sources with direct knowledge of the matter said on Wednesday.
The investigation was opened by Milan magistrates at the request of the European Public Prosecutor’s Office (EPPO), which asked the Guardia di Finanza police and the Italian Revenue Agency to checks if there is a case for user registrations to be subject to tax.
“We strongly disagree with the idea that providing access to online platforms to users should be charged with VAT,” a Meta spokesperson said in an e-mailed statement to Reuters.
The spokesperson added that the company takes its tax obligations seriously, pays all tax required in the countries where it operates and will fully co-operate with the authorities.
The EPPO, which is based in Luxembourg, said it did not comment on ongoing investigations nor would it publicly confirm which cases it was working on.
News of an administrative tax audit into Meta was first published on Wednesday by Italian daily Il Fatto Quotidiano.
The two sources said that investigators believe that free membership on Meta platforms comes in return for access to user data and should be classified as an exchange of services, therefore subject to VAT sales tax.
Italy’s tax police and revenue agency calculated a model under which Meta would have had to pay around €220-million of sales tax in Italy in 2021, according to the sources.
The figure for the period back to 2015 was calculated at €870-million.
One of the sources explained that the most relevant point was the establishment of a link between free access and data transfer as a taxable transaction, which could have repercussions for other multinationals and other countries in Europe.
A third source told Reuters that Meta believes there is no direct connection between the data provided by users and the access given to the platform, and without this link, there would be no VAT due.
The assessment by the Italian authorities has been brought to Meta’s attention and a dialogue was under way between the company and the revenue agency, according to the sources.
The company may decide either to accept the results of the investigation and pay the requested amount, or contest it and open an administrative dispute.
In recent years, the Milan Prosecutor’s Office has opened several tax investigations against multinational tech companies such as Google and Apple.
Usually, once an agreement for payment has been reached, the criminal investigation is closed.