Airbnb reaches €576m settlement with Italian tax authorities

Accommodation platform Airbnb has agreed to pay €576m ($620m) to the Italian tax authorities to settle a tax dispute. The payment relates to income taxes that the company had failed to collect from landlords who rented out rooms or properties on the Airbnb site. Italy requires landlords to pay a 21% tax on their earnings. Airbnb has stated that it will not seek to recover the unpaid taxes from hosts.

This settlement comes after an Italian judge ordered the seizure of €779.5m from Airbnb’s European headquarters in Ireland for alleged tax evasion for the 2017-2021 tax years. By agreeing to pay approximately three-quarters of the owed amount, Airbnb aims to resolve the tax dispute and maintain its presence in the important Italian market.

Italy, with its popular tourist destinations like Venice, Florence, and Rome, has been a significant market for Airbnb since its entry into the country in 2008. However, the Italian authorities have recently ramped up efforts to investigate tax practices of major companies operating in the country, including Airbnb.

In 2022, Airbnb challenged an Italian law that requires short-term rental providers to withhold 21% of rental income from landlords and remit it to tax authorities. The company argued that this law contradicted the EU’s principle of freedom to provide services across the 27-country bloc. However, the EU Court of Justice ruled against Airbnb, mandating the company to comply with the Italian taxation law.

Italian prosecutors previously accused Airbnb of not collecting taxes on nearly €3.7bn ($4bn) of rental income. Airbnb maintains that the majority of its landlords are ordinary families looking to supplement their income, and it has committed not to recover the outstanding tax amount from its hosts.

The settlement between Airbnb and the Italian tax authorities is considered a victory for Prime Minister Giorgia Meloni’s government, which has been striving to tackle tax evasion by owners of short-term lettings. The government is also planning to increase the tax rate from 21% to 26%, further tightening regulations in the tourism rental sector.

This development is likely to please hotel owners who have long argued that platforms like Airbnb create unfair competition. Hoteliers often face stricter tax obligations and regulatory requirements, and they view Airbnb as a disruptive force in the industry.

As Airbnb settles its tax dispute in Italy, the company will need to ensure compliance with local tax regulations in all its operating markets. This high-profile case serves as a reminder to other sharing economy platforms and companies that tax authorities are increasing scrutiny and enforcement efforts to ensure fair taxation and a level playing field for all businesses in the market.