Giambrone Provides Guidelines on Italian Tax to do Business In Italy

Giambrone is aware of the importance, as a foreign company starting a business in Italy of considering the Italian tax system, rates and recent changes that could affect the amount of corporate Italian income tax that has to be paid.

In the Italian legal system the following criteria are crucial to the Italian authority in deciding whether your business will come under the Italian Tax system:

• Place of legal seat
• Place of management
• Principle place of business

Should one or more of the above be located in Italy, the company will be subject to taxation on both Italian and worldwide incomes. This could lead to the added consideration of double taxation. On the grounds of what stated above, it is imperative to have the right accounts in place to avoid investigations by the Italian authorities. Giambrone tax specialists have a record of successfully advising corporate clients on international tax issues.

The rules to establish tax residency for the purpose of Italian income tax are set out in Tax Code 73(3). The legal seat is the registered office as registered with the Italian Register of Enterprises. However, it has been known for Italian courts to refer the place of legal seat as where the actual seat of superior management is. Ascertaining the above can involve in-depth investigations collecting information on all elements and factors of a business by the Italian authorities which can be complex.

Do Anti–Inversion Laws Change Italian Income Tax Rule?

These Italian Tax systems have however been open to abuse. Moreover, in an attempt to prevent companies from doing most of their trade in Italy and avoid Italian income tax by having offshore foreign holding companies, Italy enacted special Anti-Inversion Rules.

According to paragraph 5 of Tax Code section 73, the place of management will be presumed to be in Italy if the holding company directly controls an Italian domestic company resident in Italy or the majority of the board of directors controlling directly or indirectly the company/holding company are residents of Italy. The concept of control in this scenario can be a difficult one to ascertain but is defined with reference to the definition of ‘controlled company’ as set out in the provision of Italian company law, article 2359(1) Italian Civil Code.

With these Anti-Inversion Laws the emphasis to establish income tax residency in a foreign country rests on the taxpayer. The taxpayer is asked by the Italian authority to provide evidence to support that effective management is not located in Italy but abroad. In this proof, a real link must be established between the company and the country of claimed business ‘residence’ for Italian tax purposes.

Claims have been made that these rules violate, amongst others, the EU law of free movement of capital. The European Commission however refuses such claims, maintaining that Italian income tax laws are designed to combat clear cases of tax evasion whilst allowing authentic cases to defend the law’s residency presumption to the authorities.

Giambrone has in-depth expertise in advising foreign investors with investments in Italy and Italian operators with their investments abroad, providing solutions which are designed to minimise financial, legal and reputation risks.

Do you have a business that trades with Italy, or are you thinking of starting a business there? Want further clarification of these rules?

Contact Giambrone on +44 (0)207 183 9482 or email us at: clientservices@giambronelaw.com

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