Italian authorities have ordered the seizure of €779.5 million (around $835 million) from the short-term rental platform Airbnb over allegations of tax evasion.

Prosecutors in Milan accused Airbnb of failing to collect and pay taxes on rental income earned by landlords who used its platform between 2017 and 2021. Under Italian law, Airbnb is required to withhold 21% of the host’s income as tax and transfer it to the government.

The seizure order targets Airbnb’s operations in Italy and involves funds held in an Irish subsidiary of the company. Three former Airbnb managers in the country are also under investigation for their role during the period of alleged violations.

In a statement, Airbnb said it was “surprised and disappointed” by the actions taken by Italian authorities and affirmed that the company intends to fight the decision in court. Airbnb claims that it has always complied fully with Italian tax regulations and that it has been actively working to resolve the matter with authorities since June 2022.

Cracking Down on Perceived Tax Avoidance by Tech Firms

The move comes amidst a countrywide push to crack down on alleged tax avoidance by major multinational tech firms operating in the country. Regulators argue that these companies use legal loopholes and complex corporate structures to avoid paying their fair share of taxes.

In 2019, prosecutors opened an inquiry into Netflix’s Italian tax filings. Meanwhile, earlier this year, officials began investigating Meta for over €800 million in alleged unpaid VAT taxes.

Now Airbnb appears to be the latest target as authorities assert that the company evaded taxes and deprived the state of crucial revenue. Italy is considered one of the top destinations for tourists both from Europe and other corners of the world with an estimated number of 65 million visitors coming to the country every year.

Data from the analytics website Airbtics which reports interesting statistics about Airbnbs from all over the world indicates that occupancy rates in key cities like Rome, Naples, and Milan exceed 80%. Meanwhile, the average price per night in Venice, for example, is close to €300.

The Italian government has signaled plans to further increase taxes and oversight in the short-term rental market, which Airbnb dominates. Neighboring countries like France have also accused the platform of exacerbating housing shortages and gentrification.

Airbnb has previously fought Italian tax rules for hosts in European courts. In 2022, it argued that the requirements contradicted the EU principle of free movement of services.

However, the European Court of Justice upheld Italy’s right to mandate platforms like Airbnb to withhold and transfer taxes on behalf of local landlords. This legal defeat paved the way for potential action against Airbnb over non-compliance.

According to prosecutors, over €2 billion in taxes went unpaid between 2019 and 2021 due to hosts not properly declaring Airbnb income. The company denies any wrongdoing and maintains that it has always followed all applicable laws.

Airbnb Will Challenge the Ruling but It May Still Face Reputational Damages

In response to the seizure, Airbnb said it was confident of having fully complied with Italian laws. The company expressed its intent to exercise its legal rights in challenging the allegations.

Airbnb also noted that its European office has tried engaging with Italian tax authorities to resolve disputes since last June. However, prosecutors evidently decided to enforce a formal action rather than negotiate a deal.

Also read: 90+ Airbnb Statistics Updated for November 2023

The move carries symbolic significance as Italy asserts its determination to prevent perceived tax avoidance by big tech companies. It serves as a warning to platforms whose business models can obscure income flows.

However, effecting the full seizure could face lengthy legal hurdles given Airbnb’s insistence that it did fulfill its tax obligations. The case may take years to play out in court as authorities try to force Airbnb to pay the fine.

By taking punitive action, Italy is reaffirming its commitment to ensure that multinationals operating locally pay their fair share. This compounds compliance and reputation risks for Airbnb which could face questions about its financial practices in other latitudes.

The episode highlights the increasingly assertive stance that governments are taking toward major tech firms’ local tax records. Even as it vows to fight the allegations, Airbnb faces added scrutiny in one of its most lucrative markets.