Italy: 2018 Budget Includes New PE Rules and Digital Tax
Italy’s 2018 budget measures have put into effect key changes that will impact multinational companies operating in Italy and trading with Italian businesses.
As with other countries, Italy has tightened its domestic permanent establishment laws to align with OECD BEPS recommendations. These changes include:
- A PE now being triggered by continuous and significant economic presence in Italy, even in the absence of a physical presence
- PE exceptions being more directly required to be “preparatory or auxiliary”
- Dependent-agent PE being triggered in the event of offshore rubber-stamping of contracts concluded in Italy
- Dependent-agent PE clause requiring genuine non-exclusivity
At the same time, the budget imposes a 3 percent equalization tax on business-to-business services carried out through electronic means. The tax is imposed regardless of where the underlying contract is signed.
Practically, it will be important for offshore suppliers of services carried out electronically to provide confirmation to business customers that they have not provided 3,000 transactions during the calendar year. Failure to provide this confirmation to Italian customers will lead to the 3 percent tax being imposed.