Branch Exemption regime is not revocable

The branch exemption regime gives to the resident companies the right to opt for the exemption of profits and losses attributable to all their non-resident permanent establishments.

Article 168-ter of the Italian Corporate Income Taxation Text (CITT) states that the option is not revocable and that the taxpayer should opt for the regime when the PE is incorporated and that the exemption is applicable in the fiscal year related to the incorporation itself. Article 2.1 of the provision no. 165138 issued on August 28th 2017 also states that “the company should exercise the option for the regime through the Corporate Income Tax Return related to the fiscal year when the PE incorporation took place and that the exemption is applicable starting from the same fiscal year”.

With the principle no. 13 issued on November 28th 2018, the Italian Revenue Agency clarified that the branch exemption option is not revocable pursuant to art. 168-ter of the CITT and that, for this reason, the taxpayer cannot decide to misapply the option by submitting and integrative Corporate Income Tax Return and by paying the due taxes and the due interests and penalties. The option, in fact, is a direct expression of the taxpayer’s will and for this reason it can be amended only in fraud, violence or mistake presence.

The principle finds confirmation in many sentences of the Court of Cassation according to which the mistake cannot be connected to the potential fiscal benefits of the choice made by the taxpayer, nor to subsequent events.

Our Professionals are available to provide further clarifications on the topic.