UPDATE 1-EU has "serious doubts" about Italy's proposed Web tax

Thu Dec 19, 2013 10:20am EST

BRUSSELS Dec 19 (Reuters) - The European Commission warned on Thursday that Italy's proposed legislation to raise revenue from online companies including Google Inc and Amazon Inc was likely to break European Union rules.

Prime Minister Enrico Letta's government last month proposed the law, dubbed the "Google tax", that would oblige companies that advertise and sell online in Italy to do so only through companies with a tax presence in the country.

It was revised this week to exclude goods sold online, favouring companies like Amazon, making the law applicable to advertising only. That means it would still likely boost taxes for companies like Google, Yahoo Inc, and Facebook Inc .

The bill, also known as the "Web tax", is currently included in the 2014 budget package, which is due to be converted into law by a vote in the lower house on Friday and by a vote in the Senate by Christmas.

"We would have serious doubts about the amendment as it now stands, as it appears to go against the fundamental freedoms and principles of non-discrimination set out in the Treaties," said Emer Traynor, spokeswoman for Algirdas Semeta, the EU's taxation commissioner.

The measure would not tax the multinationals directly, but require them to use Italian companies to sell their advertisements rather than doing so through third parties based in low-tax countries such as Luxembourg, Ireland or outside the European Union.

Proponents of the tax have said it will raise at least 1 billion euros ($1.37 billion) a year for Italy, which is struggling to lower its debt, the second-highest in the EU after Greece.

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