Introduction 

The first reported Italian judicial decision on the Digital Services Tax (DST) provides welcome guidance for online retailers operating hybrid business models combining direct sales and intermediation activities. In Judgment No. 292/2026, delivered on 20 January 2026, the First Instance Tax Court of Milan interprets the concept of a "multilateral digital interface" to hold that revenues from certain consignment sale arrangements fell outside the scope of the DST because, for such sales, the taxpayer was acting as a principal rather than operating a multilateral digital interface. 

The Italian DST was introduced by Law No. 145/2018 and became effective on 1 January 2020 as a unilateral, interim measure pending a multilateral agreement under the OECD/G20 Base Erosion and Profit Shifting ("BEPS") Project. 

Although formally classified as an indirect tax - thereby excluding it from the scope of application of double taxation treaties signed by Italy - the Italian DST presents some features of a direct tax. To partially mitigate double taxation, the DST is deductible from Italian corporate income tax (IRES) and from the regional tax on production activities (IRAP).

Overview of the Italian DST

The Italian DST is imposed at a rate of 3% on gross revenues – net of VAT and other indirect taxes – derived from the provision of "qualifying digital services" deemed to have a territorial nexus with Italy, namely: (i) online advertising services targeted on the basis of user data; (ii) the making available of multisided digital interfaces that facilitate interactions among users, including the sale or exchange of goods and services; and (iii) the transmission of user data collected through digital interfaces. 

As regards its subjective scope, the DST applies to both resident and non-resident entities that, individually or at group level, achieved total worldwide revenues of at least EUR 750 million in the preceding calendar year (intragroup transactions are excluded). Until 2024, a second cumulative threshold — EUR 5.5 million of relevant revenues generated in Italian territory — was required; this local threshold was removed by the Italian 2025 Budget Law. 

Territorial nexus is determined by the location of the user of the digital service (ascertained via IP address or equivalent geolocation methods), irrespective of the service provider's residence. The taxable base allocated to Italy varies by service category and reflects the proportion of qualifying interactions or impressions attributable to Italian-located users. Excluded activities include direct online sales from a business’s own web portal and certain digital-content, payment, financial-services and energy-trading platforms.

From an international perspective, the Italian DST was introduced alongside similar unilateral measures as an interim measure pending implementation of Pillar One. Under the Inclusive Framework, countries adopting Pillar One will be required to withdraw their DSTs under a "sunset clause" but progress remains slow and existing DSTs remain in force as of 2026.

The Milan Tax Court ruling: Judgment No. 292/2026 (Alfa)

Background

Alfa, a company operating in the online sale of clothing, fashion and design products, paid the DST for tax years 2020, 2021, and 2022, and subsequently filed a refund claim on 25 September 2023 with respect to part of the tax paid, totalling €1,041,464.72. Alfa’s business model comprised two distinct activities:

1. a marketplace model, under which the end customer interacted, through Alfa’s website, with third-party sellers and the company earned a commission for its intermediation – an activity whose subjection to the DST was not disputed – and
2. a consignment sale model, under which suppliers delivered goods to the company under contracts analogous to the contratto estimatorio under Article 1556 of the Italian Civil Code, with Alfa not immediately acquiring ownership but purchasing the goods from the supplier only upon receipt of the customer's purchase order and then entering into a direct sale contract with the customer.

With respect to consignment sales, Alfa argued that the DST was not due because it did not make available a “multilateral digital interface” enabling users to interact with one another, as the relationship was exclusively between Alfa and each individual customer. 

The Italian tax authorities contended that the DST applied because Alfa’s websites constituted multilateral digital interfaces facilitating the direct supply of goods. They relied on customers’ ability to contact the supplier, Alfa’s limited exposure to inventory risk during the 30-day defect period, and its constrained pricing discretion.

The central question before the Court was whether Alfa's consignment sale activity involved the making available of a "multilateral digital interface" within Article 1, paragraph 37(b), or whether it constituted ordinary direct e-commerce falling outside the DST.

The Court's decision

The Court upheld Alfa's appeal in full. The key findings of the judgment can be summarised as follows:

(a) Absence of a multilateral digital interface

The decisive issue was whether Alfa’s consignment sales made available a multilateral digital interface enabling users to interact with one another, as contemplated by Article 1, paragraph 37(b), of Law No. 145/2018.

The Court found that, in respect of the consignment sales, Alfa did not make available a multilateral digital interface. The relationship was exclusively between the customer and Alfa; there was no possibility for customers to interact with each other or with Alfa’s suppliers within the website. The reference in the general terms and conditions to the ability to “contact the Partner” was held to refer to the marketplace activity (for which the DST was not contested), not to the consignment sale model.

(b) The role of Alfa: principal, not intermediary

The Court further confirmed – as an additional ground supporting the decision – that under the consignment sale model, Alfa acted as a principal and not as an intermediary. Specifically:

• Alfa bore the credit risk vis-à-vis customers;
• Alfa assumed the risk of destruction, damage or deterioration of goods (after the initial 30-day inspection period);
• Alfa set the sale prices (albeit within ranges agreed with suppliers);
• Many contracts included minimum purchase obligations or obligations to purchase all unsold goods; and
• The contract between Alfa and its suppliers constituted a contratto estimatorio under Article 1556 of the Italian Civil Code, under which Alfa effectively owned the goods at the time of sale to the customer.

Practical implications for multinational groups

As one of the first known rulings on the substantive scope of the Italian DST, this judgment carries important practical consequences for multinational enterprises operating in Italy through digital channels.

1. Revenue segmentation and DST exposure mapping: MNEs operating hybrid e-commerce models should map revenue streams and segregate DST-liable marketplace/intermediation revenues from non-liable direct B2C sales. This can reduce the overall DST base.
2. Contractual structuring and documentation: Supply-chain agreements should reflect the economic substance of the relationship, particularly the allocation of risks between the parties. Contracts should be consistent with actual operations to support treatment of the entity as a principal rather than a DST-liable intermediary.
3. Transfer pricing and DST interaction: Groups should distinguish full-risk distributors, whose own-account revenues may fall outside the DST, from limited-risk intermediaries or commissionnaires, whose third-party transaction revenues remain within scope.
4. Refund claims and statute of limitations: Groups that paid DST on direct e-commerce revenues should assess whether refund claims remain available for prior years, subject to the applicable limitation period.
5. Compliance and risk management going forward: Because the judgment is a first-instance decision, groups should balance potential DST savings against litigation risk. A prudent approach is to preserve supporting documentation, consider protective filing or refund positions, and monitor appeals and further guidance.
6. Sector-specific considerations (fashion, luxury, and retail): The ruling is particularly relevant to fashion and luxury groups that combine direct online sales with marketplace activities. Their platform architecture, customer terms, and supply agreements should clearly distinguish the two models so that DST applies only to genuine intermediation revenues.

Concluding remarks

The Milan Tax Court’s decision in the Alfa case clarifies that the Italian DST does not apply to all online commerce, but principally to activities involving a multilateral digital interface that enables user-to-user interaction. It supports excluding direct e-commerce revenues where customers interact solely with the seller, while highlighting the continuing interpretive challenges of unilateral digital taxes as OECD Pillar One implementation and possible Italian reforms remain under discussion.