The stable organization in Italy is governed by the Consolidated Taxes Act, Art. 162 of Presidential Decree 917/86, which defines it as “… a place of business by which the non-resident company exercises in whole or in part its business on the territory of the State …”.
In order to determine the total income earned in Italy by foreign companies, there is a clear distinction between income directly attributable to the foreign person (“Casa Madre”) and the income earned through a permanent establishment on Italian territory.
The income of the permanent organization consists of the profits and losses attributable to it, on the basis of an economic and financial statement drawn up in accordance with the accounting principles applicable to persons having the same characteristics.
The stable organization has an endowment fund, determined according to the OECD principles and in the field of transfer pricing, is governed by the application of the relationship between a stable organization and a parent company.
A foreign company to operate in Italy, depending on the goals it intends to pursue, may opt for one of the following types of structure listed below, with different legal and fiscal aspects:
– a local unit without legal autonomy, with auxiliary or preparatory function of the business; The office of representation is embodied as a “cost center” destined to carry out the activity and without the power to represent it.
For VAT purposes, the Tax Office is considered as a final consumer, while it is subject to typical tax substitutes in the case of services rendered by professionals or in the presence of employees or agents.
On the tax profile, it is of no relevance to direct taxes and therefore there is no tax relief, such as IRES and IRAP, in Italy; The office of representation is required to collect the documentation relating to the passive transactions in order to convey it to the foreign “parent company”.
– a separate legal entity, is a fully legal, taxing and accounting autonomous entity and is subject to all the rules laid down by the State in which the person is resident and recognized as a whole in Italy; In this case it is preferable to set up a parent company.
This second category can be exemplified by an SRL owned 100% by the parent company (eg Rossi Italia srl 100% owned by Rossi International ltd.)
This subsidiary is subject to autonomous taxation in Italy with Italian VAT and the parent company pays on any dividends, applying the rules in force in the State in which the parent company is domiciled, which governs double taxation.
– direct identification of the non-resident in Italy or appointment of a tax representative in Italy
– Third case is that of the stable organization. This is a middle ground between the first two options: it has no legal autonomy over the parent company (which is found to be unlimitedly responsible for the facts and events carried out through the permanent establishment), but is of great importance to the Tax purposes.
It can be accomplished with:
(A) a management office;
(B) a branch;
(C) an operating office;
D) a workshop;
(E) a laboratory;
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