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In the US, people have long been accustomed to the so-called ‘sin tax’. This is levied on luxury goods such as alcohol and cigarettes. Some states (e.g. Alabama, Pennsylvania, Utah and Arizona) have now extended this to online adult content. The concern is that, at a time of notorious budgetary constraints despite already immense taxes in some cases, European governments – and the German government in particular – might seize upon this as a welcome idea to plug holes in the coffers.

Italy: Collecting money with the “tassa etica” from creators

The Italian tax authority, Agenzia delle Entrate, has extended the ‘ethical tax’ on pornographic content – which has been in place for 20 years – to the simplified tax regime (regime forfettario). This affects thousands of digital creators operating under the flat-rate scheme. A 25 per cent surcharge on all income from explicit content – on top of standard income tax! The model is intended to curb “morally questionable” business models whilst simultaneously balancing the national budget. This poses a real risk for agencies and creators operating across the EU with Italian clients or residency. Experts see this as a trial balloon: should the model prove successful, similar regulations could be discussed in Germany. Admittedly, such discrimination against creators is likely to face enormous constitutional concerns. However, this is by no means a guarantee against such overreaching behaviour by state authorities. Added to this is the fact that some politicians like to puff themselves up and cite moral reasons – only to end up shamelessly lining their pockets.

In Italy, the “tassa etica” is highly controversial in any case. Critics describe it as a “morally motivated punitive tax that disregards the principles of equality”. The underlying legislation dates back to 2005 and 2006: since then, it has explicitly covered “the production, distribution, sale and display of pornographic content”. A while ago, resourceful tax officials came up with the clever idea of applying the 25% surcharge to creators who, for example, are active on OnlyFans…

What does the tax office consider to be pornography?

The “tassa etica” does not apply automatically. Rather, the Italian tax authorities must assess on a case-by-case basis whether the content produced is to be classified as “pornographic”. Soft erotica, content classified as “FSK16” in this country, or content of high artistic merit could result in the penalty tax not being applied. If the content is “pure pornography”, the tax will likely apply. But how is the classification carried out in practice? Do creators have to submit terabytes of content to the tax offices ? And who knows whether the videos sold on OnlyFans are exactly the same? One can easily imagine otherwise bored civil servants in their dusty offices poring over the sources with meticulous precision…

Is DAC7 already a game-changer?

The implementation of the DAC7 Directive around two years ago caused quite a stir – and generated massive additional revenue for the German state as well. It affects all creators and influencers – not just those in the adult entertainment sector. Since then, platforms have been obliged to automatically report payments to creators above a certain threshold to the tax authorities, effectively turning themselves into tax collectors. The already considerable success in generating additional revenue for the state coffers could prompt the bureaucracy here too to consider ways of cashing in even more effectively on the adult entertainment industry in future.