The Milan Public Prosecutor’s Office is investigating Meta for lack of payment of VAT for data acquired in Italy from users when they sign up for Facebook, Instagram, and WhatsApp, which the company uses for profit to run profiled advertising.

This is an investigation that could change the online advertising industry in Italy, but also at the European level.  But let’s analyze it in the broader context of recent allegations against Meta over its use of users’ data.

The investigation against Meta for non-payment of VAT on profiled user data in Italy

Based on the information currently available, the view of the Milan Prosecutor’s Office is that social platforms are not as free as they seem.  When signing up, users pay with their personal data, which can be used for profiling with an advertising purpose.

According to the Italian tax police, the exchange between the data provided by users and the digital services offered by Meta through its social media using them for online advertising could be subject to VAT taxation because it is a trade-in between different goods.  And to calculate the taxable amount, the Guardia di Finanza used a particular method, based on the ratio of advertising revenue from Italian sources to Meta Ireland’s total advertising revenue and multiplying it by Meta Ireland’s total costs.

Meta-related precedents on free services and profiling of its users

The dispute over the gratuitousness of Meta’s social services is nothing new.  Back in 2018, the Italian antitrust authority had accused Facebook (now Meta) of conducting unfair commercial practices by inducing users to register without informing them during account activation, of the activity of collecting, with commercial intent, the data they provided and, more generally, of the remunerative purposes underlying the provision of the social network service, emphasizing its gratuitousness alone.

In the 2018 order, the Italian antitrust authority then condemned the social media company to a fine of 10 million euros, accompanied by the obligation to publish an informative message on the platform, and urged the company to present the initiatives taken in compliance with the order.  This fine was followed by a further penalty of 5 million euros in 2021 for failure to comply with the Italian antitrust’s order because, according to the authority, “consumers who wish to register with the social network continue not to be informed with clarity and immediacy about the company’s collection and use of their data for commercial purposes.”

In an entirely separate proceeding, the European Data Protection Board then challenged Meta’s ability to perform profiling of its users on the legal basis of contractual performance, requiring that specific consent be obtained from its users instead.  Following this EDPB stance, Ireland’s privacy watchdog, the Irish Data Protection Commission, issued a € 390 million fine contesting that the lack of GDPR-compliant processing of its users’ data to perform personalized advertising on the legal basis of contractual performance.

What is the current situation, and what are the impacts of the possible action against Meta on the online advertising industry?

The transfer of personal data as consideration for services is not prohibited. On the contrary, Art. 135-octies, para. 4, of the Italian Consumer Code, implementing the EU Diretive 2019/771, recognizes the possibility of using personal data as consideration for the purchase of digital content and services, providing that the provisions of Chapter I-bis on “contracts for the provision of digital content and digital services” are also applicable in cases where “the trader provides or undertakes to provide digital content or a digital service to the consumer and the consumer provides or undertakes to provide personal data to the trader, except where the personal data provided by the consumer are processed exclusively by the trader for the purpose of providing the digital content or digital service under this chapter or to enable the performance of legal obligations to which the trader is subject, and the trader does not process such data for purposes other than those intended. ”

Thus, the possibility for the consumer to provide data as consideration for digital content and services is provided for by the law and can take place, provided that this provision is transparent and does not condition the freedom of users’ consent.

This legal framework arises not only with respect to social media, but also with reference to profiled advertising offered through, for example, cookies by many publishers in recent months.  Users are given, in a completely transparent manner, the choice between giving consent to the installation of profiling cookies and subscribing to the online newspaper.

However, the position of the Milan Public Prosecutor’s Office against Meta with respect to paying VAT in relation to user data used to run its profiled advertising could have significant consequences not only on social media but on the entire online advertising industry.  This scenario could put a strain on an industry that already has significant difficulties based on an unprecedented interpretation.

On a similar topic, the following article “Personal data validated as price for digital contents and services” may be of interest.

Photo by Dima Solomin on Unsplash