THE CONNECTING FACTORS OF PERMANENT ESTABLISHMENTS: THE ITALIAN CASE-LAW

The complex of the present tax regulatory system requires Multinationals to consider carefully their internationalization strategies in order to limit the (real) risk of running into foreign-dressing or unintended permanent establishment (“PE”) objections.

Generally, among corporate groups, the subsidiaries’ decision-making power is always affected by the management and coordination activity of the parent entity, despite with various intensity. The parent company establishes the group structure and takes part in the most significant transactions, dictating the strategic guide lines for the group, even if they are materially implemented by the subsidiaries.

In such a scenario, the Italian case-law many times confirmed that the place of effective management cannot be identify with the place where the group’s strategic guide lines are taken. What matters is, instead, the place where key management and commercial decisions necessary for the conduct of the business are in substance made and given, according with the “day-to-day management” criteria. This is simply a set of guidelines. Every case shall be judged based on its own facts and circumstances.

It is considered that the management and coordination activity shall materially prevail over the effective management activity when it consists in mere definition of business strategies or strategic lines pertaining to organisational aspects and personnel policies at the macro level or definition of risk management policies. Otherwise, the resident subsidiary could be qualified as a permanent establishment of the parent company (so-called permanent establishment “nidificata”).

CTR Lombardia recently expressed on these themes (sent. No. 4915/18 dated Nov. 14, 2018): the Judges claimed that the existence of a fixed place of business of the parent company in the same building where its subsidiary stands is not enough, alone, in order to qualify the resident subsidiary as a permanent establishment of its parent company.

In order to identify the effective management activity, as a connecting factor for companies’ tax residence, the Authority shall find, as quid pluris, ordinary management activities such as management and control over the processes and inputs, personnel management, relations with third-parties, conclusion of contracts for ordinary activities, cash receipts and payments.

Our staff is available for any clarification.