Italian Corporate Income Tax (ITR) – PE and Non-Resident Taxation

Vocabulary flashcards covering key terms and definitions from the lecture notes on PE, ITR provisions, and related concepts.

Permanent Establishment (PE)

A fixed place of business through which a non-resident enterprise carries on all or part of its activity in the State; it is the threshold that triggers taxation rights for the Source State.”

Article 169 ITR

Prevalence rule: domestic tax rules apply only if more favorable to the taxpayer, otherwise international law prevails; with an exception when domestic provisions are more favorable.”

Article 162 ITR

Core PE provisions: defines what constitutes a permanent establishment in Italian tax law and governs non-residents’ tax obligations.

Article 162, para 2 ITR (Positive List)

Illustrative list of PE possibilities (e.g., place of management, branch, office, workshop, laboratory, mine/oil/gas field) including the f-bis nexus.”

f-bis

New nexus introduced by the 2018 Italian Budget Law to address a significant and continuous economic presence beyond physical presence; not included in the OECD Model Convention.

Construction site as PE

A construction/installation site constitutes PE only if it lasts more than three months; supervisory activities can create PE and duration rules can be retroactive.”

Auxiliary/Preparatory Nature (Art. 162, para 4-bis)

PE does not apply if the activities are preparatory or auxiliary to the main business, per the sub-paragraphs (a) to (e) or (f) in para 4.”

Negative List (Art. 162, para 4)

Notwithstanding paras (1)–(3), certain activities do not create PE (e.g., storage, exhibition, delivery of goods, etc.).”

Anti-fragmentation rule (Art. 162, para 5)

Prevents fragmentation of activities across multiple places or closely related enterprises to avoid PE; the combined activity may be treated as a PE.”

Personal PE (Art. 162, para 6)

If a person acts in Italy on behalf of a non-resident enterprise and habitually concludes contracts or handles key transactions, the enterprise may have a PE unless activities are only those in para 4.”

Independent Agent (Art. 162, para 7)

No PE if a person acts as an autonomous intermediary in the ordinary course of business and not exclusively for one or more closely related enterprises.”

Closely Related Person (Art. 162, para 7-bis)

Defined by control relations; a person closely related to an enterprise if one controls the other or both are controlled by the same person (often >50% ownership or voting rights).”

10A. Closely related person (para 7-bis)

Criteria for close relation: control or majority ownership/voting rights, indicating potential nexus between enterprises.

10B. Closely related person (para 9)

Even if one enterprise controls another or both are controlled by a third party, this alone does not automatically create a PE; cross-control alone is not sufficient.”

Income attributable to the PE (Art 152 ITR)

Income of a non-resident with a PE is determined on the profits attributable to that PE, treated as a separate entity, using OECD-style criteria for functions, risks, and assets.”

Branch Exemption (BEX) (Art 168-ter ITR)

Option for exemption of profits and losses attributable to foreign PEs; aims to avoid double taxation by exempting PE income in the resident country under certain conditions.”

All-in vs All-out (BEX)

Choice under BEX: either exempt all PE income (all-in) or exempt all PE income from all PEs in the group (all-out); no cherry-picking between PEs.”

Esterovestizione (Deemed tax residence)

A non-resident enterprise may be deemed resident if control or administration is effectively in Italy, enabling a more favorable regime; an apparent mismatch between formal and substantial residence.”

Tax residence for Business Profits (Art 73, para 3 ITR)

Residents are those with their registered office, place of effective management, or principal ordinary management in Italy for the majority of the tax period.”

Tax period and Tax Rate (Art 76-77 ITR)

Tax is due per tax period; the period is the financial year or another period determined by law or incorporation deed; standard CIT rate is 24%.”

Business Profits (Art 73, para 1 ITR)

Lists which entities (resident or non-resident) are subject to corporate income tax in Italy for business profits.”

Application of tax to non-residents (Art 23 ITR)

Non-residents are deemed to have income produced in Italy across categories such as land, capital, employment, self-employment, business income through PE, and miscellaneous income.”

Article 23(1)(c) ITR

For non-residents, business income from activities carried out in Italy through a permanent establishment is taxable.”

OECD Model Convention (MC) reference

The OECD Model Tax Convention provides the standard framework for international tax; some Italian rules (like f-bis) may not be reflected in the OECD MC.”