The Italian justice system has just sent a clear signal to Silicon Valley: a settlement with the tax authorities no longer guarantees immunity in criminal cases. In a move unprecedented in Europe, Milan prosecutors have called for a trial against Amazon and four of its managers. The case concerns the alleged evasion of €1.2 billion in VAT between 2019 and 2021.
The situation is all the more unusual in that the e-commerce giant voluntarily paid €527 million into the Italian coffers last December in the hope of closing the dispute. Previous practice in Italy was clear – the payment meant the end of legal troubles for the corporation. This time, however, the prosecutor’s office decided to come out ahead, questioning the effectiveness of soft settlements and raising questions about the stability of the regulatory environment for foreign investors.
“Avoidance algorithm” under the magnifying glass
At the heart of the dispute is not only the amount, but above all the company’s operational mechanism. Prosecutors claim that Amazon used sophisticated models and algorithms that allowed tens of thousands of sellers from outside the European Union – mainly from China – to offer goods without full tax transparency. Under Italian law, the platform, as an intermediary, shares responsibility for the unpaid VAT of its counterparties.
For executives in the technology sector, this issue is of strategic importance. VAT is a harmonised tax across the Community, meaning that a possible conviction in Italy could become a ready-made template for prosecutors in other member states. The global marketplace business model, which has so far enjoyed relative freedom to settle cross-border transactions, faces the spectre of a systemic overhaul.
Implications for investment
Amazon has announced a strong defence, arguing that the unpredictability of the Italian legal system is hurting the country’s investment attractiveness. However, the company has more fronts to cover – parallel investigations by the European Public Prosecutor’s Office (EPPO) and local investigations into customs fraud and employee data protection are ongoing.
