Italian Government Wins 800 Million Euro Judgement Against Airbnb For Unpaid Taxes On Rental Income

The European Union's equivalent of the Supreme Court recently ruled in favor of the Italian government's right to seize nearly 800 million euros from the Airbnb Inc. short-term rental platform. The judgment amount represents rental revenue accrued by Italian landlords since 2017 when Italy passed a law that required Airbnb to collect a 21% flat tax on all short-term rentals.

Like many European nations, Italy has struggled to balance the profit potential of Airbnb against the extent to which an overabundance of short-term housing disrupts local housing markets. One of the methods it employed was the implementation of a registration and licensing process for short-term rental landlords. The same law required Airbnb to collect the flat tax, but Airbnb has been fighting that provision since it passed.

The Final Appeal Has Been Lost

Airbnb objected to the law in 2017 because EU law allowed it to conduct business freely in any member state. Although the court granted Airbnb a small victory by overturning the requirement that it appoint a full-time tax representative to monitor its affairs, the Luxembourg-based judicial body has repeatedly ruled in favor of individual EU nations to license, regulate and tax the short-term rental industry.

The decision upholding Italy's planned tax seizure is a continuance of that trend. Although short-term rentals have been an economic winner for some, the EU is mindful of the extent to which they have changed the dynamics of local rental markets. To that end, the EU high court affirmed that Paris had the right to restrict short-term rentals because of the negative effects an abundance of short-term rentals has on housing affordability.

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European Markets Have The Same Concerns As American Markets

Countries like Italy, which sees an estimated 65 million tourists per year, depend heavily on the sector to bolster its economy. There are a lot of advantages to having legions of tourists with money to burn arriving daily. They provide jobs and tax revenue.

But the prevalence of Airbnb units in tourist destinations disincentivizes landlords from doing long-term rentals because they can make so much more by turning their places over to short-term rental platforms.

It also takes housing units out of the inventory, which only serves to drive up the prices of the long-term rentals that do remain. Complicating this further is that the salaries for most European jobs have simply not caught up with the rapid rate of rental increases. This is the same issue that many Americans have when Airbnb becomes the hot new game in town.

 A Regulatory Tightrope For Governments

Whenever you have a major disruptor to an industry like Airbnb, vast sums of money can be made by people in the right position. The fact that Airbnb has 779 million euros that can be seized as tax revenue by one country speaks to the economic power the app possesses. How many businesses can absorb a financial hit like that and keep operating? That's the kind of juggernaut Airbnb has become. 

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Like the United States, the EU is hurriedly trying to find a middle ground between collecting all that tax revenue without exacerbating housing affordability issues in its destination cities. Both the EU and the U.S. will likely be watching and learning from each other's regulatory moves when it comes to Airbnb.

Airbnb isn't going anywhere. Landlords love it. Ironically, many of the same people who blame Airbnb rentals for spiraling rents in their hometowns love Airbnb when they travel. That's why you can expect governments on both sides of the ocean to be walking this regulatory tightrope for a long time to come. In the meantime, Airbnb is about to cut a very large check to the Italian government.

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