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Italy: Italy extends International Standard Ruling procedure

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Giuliano Foglia


Giovanni d’Ayala Valva

With the conversion into law of the Destinazione Italia Decree (Law Decree December 23 2013, No. 145 converted into Law February 21 2014, No. 9) certain significant and welcomed amendments to the Italian International Standard Ruling procedure become definitive. The Italian International Standard Ruling was introduced in Italy in 2005 with the aim of preventing and minimising tax litigations with the Italian tax authority and to reduce the risk of international double taxation: it is, in fact, addressed to companies carrying out international activities that intend to reach an advance agreement with the Italian tax administration regarding the taxation of income derived from certain cross-border transactions.

In particular, the matters covered by the Italian International Standard Ruling were originally: (i) the transfer pricing methodology applicable to transactions carried on with related parties in the form of unilateral, bilateral and multilateral APAs; (ii) the tax treatment of dividends, interest and royalties; (iii) the attribution of profits or losses to permanent establishment of non-resident companies and to foreign permanent establishment of resident companies.

In this situation, and as part of a package of provisions aimed at encouraging and attracting foreign investment in Italy through a more certain legal environment, the Decree has now extended the scope of application of the above mentioned procedure.

More specifically, it is now introduced the possibility for a non-resident taxpayer to address in advance whether its presence in Italy amounts to a permanent establishment or not. In other words, non-resident entities operating in Italy might now request a ruling from the tax authority on whether their activities create a permanent establishment in Italy under Italian domestic law or tax treaty provisions.

Furthermore, the Italian International Standard Ruling becomes more attractive for foreign investors as the Decree extends also the legal validity of the ruling to five fiscal years (while before the amendment the agreement was binding for a period of three years including the year in which the agreement was reached). As a result, it is now provided that the agreement is binding on both the taxpayer and the tax administration for the tax year in which it is reached and for the following four years, provided that the relevant facts and circumstances do not change.

In addition, the Decree centralised into a single office of the Italian tax authority the management of the Italian International Standard Ruling applications filed by the taxpayers.

Giuliano Foglia (foglia@virtax.it) and Giovanni d'Ayala Valva (dayala@virtax.it)

Tremonti Vitali Romagnoli Piccardi e Associati

Tel: +39 06 3218022 (Rome); +39 02 58313707 (Milan)

Website: www.virtax.it

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