In a move with potentially far-reaching implications for the tech industry in Europe, Italian tax authorities have extended their investigation to Elon Musk’s social network X, seeking €12.5 million in value-added tax (VAT) for the period 2016 to 2022, Reuters has reported.

According to sources with direct knowledge of the matter, the probe runs in parallel with a similar inquiry into Meta, highlighting a broader effort by Italy to scrutinize how social networks generate revenue. Italian tax officials contend that user registrations on platforms like X, Facebook, and Instagram could be viewed as taxable transactions, since they involve the exchange of a membership account in return for a user's personal data.

Although the €12.5 million claim represents a small fraction of X’s revenue—reported at $3.4 billion in 2023—the case is seen as a test of a new tax interpretation that could reshape the business model of digital service providers across the European Union, where VAT is harmonized among 27 member states.

Milan’s Guardia di Finanza (GDF) concluded its audit last April, finding that X had not paid the required VAT on its operations in Italy. In January, Italy’s Revenue Agency issued a formal list of observations regarding the 2016 tax year—a deadline that is set to expire this year. Following the audit, Milan prosecutors launched a criminal investigation into X, mirroring similar actions taken against Meta, which had completed its initial stage last December.

The tax authorities have given both X and Meta until late March or early April to respond to these observations. At that point, the companies must either agree to settle by paying the claimed amount or face a full judicial tax dispute. Should the Revenue Agency opt for the latter, the process could extend for an average of about 10 years, with potential financial liabilities increasing over time if the companies lose the case.

The probe comes amid heightened sensitivity to digital service taxes across Europe, with U.S. President Donald Trump having recently threatened tariffs on imports from countries that impose such levies on U.S. tech firms. This development adds another layer of complexity, especially as Musk maintains a strong relationship with Italian Prime Minister Giorgia Meloni and is keen to expand his Starlink communications business in the country.

In a related move, Italy extended its domestic digital services tax to small and medium-sized enterprises in November, a step taken to address U.S. objections that the tax was discriminatory.

X did not immediately respond to requests for comment on the matter. Sources noted that both X and Meta have since ceased direct interactions with Italian authorities, as the cases now touch upon a broader tax framework that could alter how digital services are taxed across the EU.

As the Revenue Agency finalizes its approach, industry observers are closely watching the case, which could set a precedent affecting the entire tech sector in Europe.

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