Accommodation giant Airbnb has reached an agreement with Italian tax authorities to settle a longstanding tax dispute. The company will pay €576m ($620m; £496m) to compensate for income taxes that were not collected from hosts who rented out rooms and properties on the popular short-term rental platform.

Italy requires landlords to pay a 21% tax on their earnings from rental accommodations. The payment by Airbnb aims to cover the amount owed in unpaid income taxes by thousands of landlords in the country. Importantly, the company has confirmed that it will not seek to recover the unpaid taxes from its hosts.

The settlement comes after an Italian judge ordered the seizure of €779.5m from Airbnb's European headquarters in Ireland due to alleged tax evasion between the years 2017 and 2021. By agreeing to pay the majority of the owed taxes, Airbnb has resolved a significant portion of the tax dispute with the Italian authorities.

Italy, renowned for its tourist hotspots like Venice, Florence, and Rome, represents a crucial market for Airbnb. Consequently, the Italian authorities have recently increased their scrutiny of major companies' tax practices, including Airbnb.

In 2022, Airbnb challenged a law in Italy that required short-term rental providers to withhold 21% of rental income and remit it to the tax authorities. The company argued that this law violated the EU's principle of freedom to provide services across the bloc. However, the EU Court of Justice ruled against Airbnb, stating that it must adhere to the Italian tax law.

Italian prosecutors revealed in November that Airbnb had failed to collect taxes from landlords on approximately €3.7bn ($4bn; £3bn) worth of rental income. Airbnb countered by highlighting that the majority of landlords utilizing their platform are ordinary families seeking to supplement their income. The company clarified that it would not attempt to recover the outstanding tax sum from its hosts.

The Italian government, under the leadership of Prime Minister Giorgia Meloni, has been actively tackling tax evasion associated with short-term rentals. As part of these efforts, they plan to raise the tax on such rentals from 21% to 26%, aiming to further regulate the market.

The resolution of the tax dispute with Airbnb is a significant victory for the Italian government. The decision will also be welcomed by hotel owners who have argued that platforms like Airbnb create unfair competition. As the company pays its outstanding tax liability, it demonstrates its commitment to complying with local tax regulations and maintaining a cooperative relationship with the Italian authorities.