The Italian “voluntary disclosure” program for “hidden” permanent establishments belonging to multinational groups.

Awaiting more concrete indications from the OECD’s ongoing work, the Italian parliament is in the course of enacting a new provision⁽¹⁾ – the so-called “Italian web tax”⁽²⁾ – aimed at intercepting the income derived by non-resident entities (having a consolidated worldwide turnover higher than 1 billion Euro per year) from the sale of goods and the provision of services (for an amount higher than 50 million Euro per year) made/rendered in the Italian territory directly or with the support of an Italian company/branch belonging to the same
multinational group.

The scope of this provision is to incentivize foreign multinational groups – whose business model could trigger the existence of a permanent establishment in Italy, but has not yet been investigated/challenged by the Italian authorities – to interact with the Italian Tax Authority, by filing a ruling request within the context of the Italian cooperative compliance program, in order to jointly assess the effective presence of such permanent establishment⁽³⁾.

(1) The Decree Law No. 50 of 24th April 2017 containing the new provision is in the process of being converted into Law (deadline 23rd June 2017) and no material changes “in parte qua” are expected. The new regime shall, however, be implement by “ad hoc” regulations to be issued by the Italian Tax Authority.
(2) Despite the “web tax” name used by the press, the provision should apply to all type of businesses.
(3) This analysis shall be performed in accordance with the OECD and Italian domestic tax law principles (which substantially mirror the OECD ones).

Should the cooperative procedure result in the detection of the effective presence of a permanent establishment, the new regime allows the taxpayer (who adheres to the Tax Authority’s determinations in relation to all fiscal years still “open to assessment”⁽⁴⁾) to:

(i) benefit from the reduction by 50% of the administrative penalties generally applicable in case of tax settlement⁽⁵⁾;

(ii) benefit from the non-application of the criminal penalties generally applicable in case of omitted filing of the tax return;

(iii) join the Italian cooperative compliance program⁽⁶⁾, with all the related benefits⁽⁷⁾.

Under current legislation, non-resident entities already have the possibility to interact with the Italian Tax Authority – by filing a proper ruling request – in order to assess (i) the potential existence of a permanent establishment in the Italian territory prior to starting a new business activity therein (on an ex ante approach) and, in the positive, (ii) the profits effectively attributable to such permanent establishment Now, the new provision allows non-resident entities to assess the potential presence of a permanent establishment (jointly with the Italian Tax Authority) on an ex post approach. In other words, under the new law, the dialogue with the Italian Tax Authority is aimed at clarifying and, eventually, rectifying the tax treatment of an already ongoing activity.

Given the above framework, the combination of the “Italian web tax” with the abovementioned “ruling procedure” should allow non-resident entites to reach the comprehensive goal of fixing the past and defining the future.

(4) At present, in general, from fiscal year 2011 to fiscal year 2015.
(5) Penalties would in general result in an amount equal to 20% of tax due.
(6) Access to this program is currently resctricted to a limited number of companies, having very specific requirements.
(7) This program, in particular, grants to the applicants (i) a “fast track” ruling procedure (45 days), and (ii) a reduction by 50% of the minimum administrative penalties provided for by the law.

Contacts for further clarification:
Cristiano Caumont Caimi (Partner) and Giulio Tombesi (Associate)