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VAT refunds for an Italian permanent establishment clarified

Gian Luca Nieddu and Barbara Scampuddu of Hager & Partners explain the latest clarifications following the recent change in law on VAT refund requests.

The Central Revenue issued a ruling on February 10 2020 which provided clarifications regarding the requirements for a VAT refund request from an Italian permanent establishment with a holding company not resident in Italy. 

For the Central Revenue, based on Article 38-bis, paragraph 3 of Presidential Decree No. 633 of October 26 1972 (VAT Decree), the main condition required for the certification of the VAT credit to have been verified by the foreign parent company and not by the permanent establishment.

In order to receive the VAT refund, there are some conditions to be respected, even in the specific case above in regard to Italian permanent establishment.

Based on Article 38-bis, it is necessary to have capital stability for the refund of an amount exceeding €30,000. Moreover, it is requested that the net capital of the refund applicant has not decreased by more than 40% when compared with the accounting results of the last tax period. 

In the specific case presented in the tax ruling application, the unclear aspect of the law submitted to the Revenue arises from the fact that the applicant, being a permanent establishment, does not prepare an official financial statement for the year. Therefore, there is no net equity, with respect to the requirements provided by Article 38 bis.

The Central Revenue provides clarifications recalling the principle ratified by the EU Court of Justice (sentence of March 23 2006, case C-210/04): the branch of a non-resident company is not autonomous and therefore no legal relationship can be deemed to exist between company and branch. Accordingly, they have to be considered as one unique person for VAT purposes (Article 4, No. 1 of the VI Directive).

The consequence will be that the condition of capital solidity referred to in Article 38-bis must be verified by the foreign parent company and not by the permanent establishment.

In addition, it will be certified by the Italian permanent establishment through a substitute declaration made in the manner described in the circular of the Central Revenue No. 35/2015, paragraph 9, with respect to the hypothesis of a non-resident subject with a tax representative in Italy.

Moreover, the holding company cannot act as guarantor for a permanent establishment for VAT refund. According to the principle that parent company and permanent establishment are one single (legal) entity, the simplification envisaged for the groups implies the assets of a third are affiliated.

Therefore, for the VAT refund for Italian permanent establishment, the guarantee must be provided in the other forms provided for by Article 38-bis (i.e., by the security of state bonds or bonds guaranteed by the State, a surety, a policy issued by an insurance company, etc).


Gian Luca Nieddu
T: +39 02 7780711 

Barbara Scampuddu

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