In such cases, the general risk is that tax authorities may argue that the local activities trigger the threshold for a PE, with the known tax consequences (local taxation, double taxation and most probably administrative and criminal sanctions). General implications may also involve the need for fund managers (eg. Private equity) to spend time in the country of the target investment. Italy is also experiencing an inflow of high skilled personnel, due to relocation tax benefits.
It is exactly here where the new law makes its impact. The IMEX Italian rules provide that, under certain conditions, investment management activities in Italy do not determine the existence of a permanent establishment (PE). With this provision, the legislator aims to boost Italy’s attractiveness to foreign investors by offering a ‘safe harbour’ for managers assisting the investor company.
The new Budget law amends Article 162 of the Italian Consolidated Tax Code (“ICTC”), dedicated to PE, and provides the conditions under which investment funds/investors can avoid being considered as having a PE in Italy due to the activities carried out by managers.
More specifically, the notions of Agency PE and Physical PE have been updated as following:
– individuals (including non-residents) who, in the name of or on behalf of the foreign investment vehicle, habitually conclude purchase, sale or negotiation contracts, or contribute to the purchase, sale or negotiation of participations, financial instruments, derivatives and credits, are to be regarded as independent agents.
– the fixed place of business at the disposal of a resident enterprise which carries on business activities therein shall not be deemed to be at the disposal of the foreign investment vehicle merely because the activity carried on therein benefits the foreign vehicle.
These presumptions are specifically conditioned to:
Some requirements still need to be specified in further decrees and implementing provisions and some issues shall be clarified by the tax authorities.
It should be also considered that the positive effect for asset managers could be even greater by combining the tax regimes offered in Italy to attract new tax residents.
Our Italian desk in London and Milan will be happy to follow up and support interested parties by providing:
At your request we can provide further specific information and clarification