Permanent establishment: business activities and the “de facto” administrator’s role
The Supreme Tax Court with the decision n. 21693/2020 ruled that a permanent establishment is set when a non-resident or resident Company carries on all or part of its business activity in the territory of the State with a fixed place of business.
In the present case, the Tax Office has notified to a non-resident Company tax assessments for corporate income tax purposes relating to the fiscal years 1999-2006. According to the Italian Tax Authorities, the following elements revealed the presence of a permanent establishment of the non – resident Company in Italian territory.
The Company has filed appeals against these tax assessments. The Tax Court of first and second instance has partially upheld the appeal and ruled that the permanent establishment has emerged only concerning Italian transactions.
In turn, the Italian Tax office appealed the decision before the Supreme Court, claiming the false application of Article 162 of Presidential Decree n. 917/1986.
The Supreme Court has admitted the decision of the Regional Tax Court for two reasons.
Article 162 of Presidential Decree n. 917/1986 provide that the permanent establishment includes:
- a “significant and continuous economic presence” in Italian territory;
- a person that, acting on behalf of non-resident enterprises, habitually conclude contracts, or participate in the conclusion of contracts that are routinely concluded by such enterprises.
The Supreme Tax Court has ruled that it is necessary to carry out an economically relevant activity for the subject; such activity can also include the performance of a service or, more generally, of any business activity provided that it relates to the subject abovementioned.
If the permanent establishment also carries out preliminary or auxiliary activities which are not included in the activities carried out by the parent company, these would, in any case, be included in the business activity, related to the permanent establishment subject.
In the specific case, the Supreme Court stated that the circumstance that the business activity should be considered “complete” concerning Italian customers only, could not be considered sufficient to exclude the other activities carried out from the permanent establishment.
Another aspect examined by the Supreme Court concerns the role assumed, in Italy, by the de facto director, who carried out a series of activities such as the conclusion of purchase and sale contracts, the reuse of money, investments, loans and mortgages and purchasing activities for subsidiaries.
The Supreme Court stated that the activity carried out by this person is relevant for the qualification of “agent” pursuant to art. 162, paragraph 6, of the Presidential Decree n. 917/1986.