The European Union’s highest court ruled on Thursday that Airbnb must give information in rental contracts to tax authorities and withhold tax in accordance with a national system. Airbnb offers services for temporary housing.  

The decision follows an Italian law from 2017 that required Airbnb and other short-term rental sites to forward information from their rental contracts to tax authorities and to withhold and pay 21% of the rental income to tax authorities. Airbnb challenged the law.

The business argued that taxation and other requirements violated the EU principle of the freedom to provide services throughout the bloc of 27 countries and thus challenged the law in an Italian court.

The Court of Justice of the European Union was then consulted by the Italian court (CJEU).

“EU law does not preclude the requirement to collect information or to withhold tax under a national tax regime,” the EU court said in a statement.

“However, the obligation to appoint a tax representative constitutes a disproportionate restriction on the freedom to provide services,” it said.

As a plaintiff in the case, the Italian hoteliers’ association Federalberghi applauded the decision and effectively accused Airbnb of evading its tax obligations in Italy.

“Tax evasion and unfair competition damage both traditional tourist businesses and those who correctly manage the new forms of hospitality,” it said in a statement.

Federalberghi claims that over the course of six years, Airbnb failed to withhold and turn over to the inland revenue an estimated 1.5 billion euros ($1.6 billion).

However, an Airbnb spokesperson claimed that by implementing the common tax reporting framework approved by the EU, the company was already supporting the accurate payment of host income tax.

“Airbnb does not have a tax representative to enforce the withholding of income tax in Italy, and the CJEU’s ruling makes clear that any requirement to appoint one is contrary to EU law,” the spokesperson said.

“We will continue to make progress on the EU’s bloc-wide approach to income tax reporting while we await the final decision of the Italian court,” the Airbnb spokesperson said.

(Adapted from USNews.com)