Airbnb to pay $620 million to settle some Italian tax obligations

MILAN (Reuters) -Vacation rental platform Airbnb said on Wednesday it would pay 576 million euros ($621 million) to the Italian Revenue Agency to settle outstanding income tax obligations for the 2017-2021 tax years.

Airbnb, which has its European headquarters in Ireland, did not admit any liability as part of the settlement, which did not include 2022 and 2023.

The amounts that may need to be paid for these two years could be "material", Airbnb said in a regulatory filing.

The settlement regards the tax obligations of owners, or "hosts", in Italy who use Airbnb to rent out their property. Airbnb withholds part of the income from these hosts and in return assumes their tax liabilities.

Airbnb said it was not seeking to recover the sum from its hosts.

Last month, a judge in Italy ordered the seizure of 779.5 million euros from Airbnb's Irish headquarters for alleged tax evasion.

The probe was related to Airbnb's alleged failure to withhold 21% of landlords' rental income and pay it to Italian tax authorities, as required by a 2017 law, Milan prosecutors' office said.

The sum of 576 million euros that Airbnb has agreed to pay was reached by subtracting from the 779.5 million figure of alleged tax evasion some 200 million that some of the hosts had paid independently to the Italian tax authorities, three sources with direct knowledge of the matter said.

The sources also said that Milan prosecutors will now ask the judge to release the 779.5 million euros.

The case will be dropped for three Airbnb managers under investigation, they added.

The decision was largely expected and it should not impact earnings, since it is a one-off, Richard Clarke, an analyst at Bernstein told Reuters.

"They are being extremely good to hosts here, effectively paying the tax on their behalf," he added.

Airbnb had unsuccessfully challenged the 2017 law cited by prosecutors in a legal battle that ended in December last year when the EU Court of Justice ruled in the Italian government's favour.

Prime Minister Giorgia Meloni's administration has promised to crack down on tax-dodging related to short-term rentals, and wants to raise taxes to 26% from 21% for owners of multiple short-term rental properties.

Airbnb said it aimed to comply with new Italian rules which clarify how rental platforms should withhold income taxes for non-professional hosts in Italy.

"We..are preparing to comply by introducing new tools for applicable hosts to have their taxes withheld automatically by Airbnb and paid to the Italian Revenue Agency on their behalf directly", it said in a statement.

Airbnb said it was also preparing to comply with DAC 7, an EU-wide tax reporting framework for digital platforms.

Airbnb's shares were up around 1.5% in pre-market trading in New York on Wednesday.

($1 = 0.9282 euros)

(Reporting by Aishwarya Jain in Bengaluru, Elisa Anzolin and Emilio Parodi in Milan; Editing by Gavin Jones and Angus MacSwan)