Residence Certificate And Withholding Refund

The Head-Office Is Not Entited To Vat Refund If Has A Permanet Establishment In Italy

New Tax Treaties To Be Approved By The Parliament

Special Scheme For Small Enterprises Found To Be Compliant With The Vat Directive

The Italian Tax Authorities Is-Sued Certain Implementing Rules On The New Cfc Regime

Italian Law Related To The Main Object Of A Company Is In Breach Of Eu Law

The Oced Issues A Consolidated Commentary On Pillar 2

Residence certificate and withholding refund

With its decision no. 9050 of 25 April 2024, the Italian Supreme Court ruled that, in order for a foreign employee to receive the reimbursement of withholding levied by his/hers Italian employer, he/she only needs to provide the Italian Tax Authorities with a residence certificate stating that the employee is liable to tax in his/her Country of residence.

On the contrary, it is not necessary that for the employee to prove that the amount received has actually been subject to tax in its Country.

Thead-office is not entited to vat refund if has a permanet establishment in Italy

According to the Italian Tax Authorities (ruling reply no. 87 of 8 April 2024), the existence of a permanent establishment in Italy prevents the foreign head-office from claiming a VAT credit refund.

Moreover, if the head-office is an English-registered entity belonging to a VAT Group in the United Kingdom, the services provided to it by the permanent establishment are irrelevant for VAT purposes.

Hence, it is not possible to recover the credit under Article 30(2)(d) of the Presidential Decree 633/72; furthermore, the VAT refund under Article 38-ter of Presidential Decree 633/72, which is allowed for purchases and imports directly made by the non-resident in the territory of the Italian State, is not applicable.

Indeed, in the case examined in the ruling, the passive transactions are attributable exclusively to the permanent establishment and only the permanent establishment (not the head-office) can claim the refund of the excess, if the conditions are met.

New tax treaties to be approved by the Parliament

On 15 April 2024, the Italian Council of Ministers approved three bills to ratify the tax treaties signed with the following Countries:

• Libya, in Rome on 10 June 2009;
• Liechtenstein, in Rome and Vaduz on 12 July 2023;
• the People’s Republic of China, in Rome on 23 March 2019.

With respect to the tax treaty with China, the new treaty replaces the existing one, signed on 31 October 86 and still in force.

The bills will be submitted to Parliament for final approval.

The Italian Tax Authorities is-sued certain implementing rules on the new CFC regime 

With the ordinance no. 213637 dated 30 April 2024 the Italian Tax Authorities has issued the implementing rules related to the option for the 15% substitute tax regime pursuant to Art. 167(4-ter) of the TUIR, introduced as part of the revised Italian CFC regulations by Legislative Decree 209/2023.

The option can be exercised by the “last level” controlling entity in the FC form of the tax return and is effective as of the fiscal year covered by the declaration.

The option is also effective for subsidiaries acquired in any capacity during the period when the option is effective, provided that the requirements provided for the substitute tax to apply are met in the hands of the new acquired entities.

The taxable base for the substitute tax is the subsidiary’s net accounting profit. It is calculated from the accounting profit obtained by applying the accounting principles used for the consolidated financial statements, without considering consolidation adjustments and any write-downs of asset values and provisions for risks.

The substitute tax is to be settled and paid by the parent company in proportion to its share in the profits, whether directly or indirectly.

Special scheme for small enterprises found to be compliant with the VAT Directive

The European Court of Justice, in its decision on Case C-122/23 of 11 April 2024, affirmed that a national rule under which a taxable person, who exceeds a given turnover, can benefit from the VAT exemption for small businesses provided that it applies for VAT registration within a certain deadline is compliant with Directive 2006/112/EC.

In the case at stake, a Bulgarian company operating under the VAT-free regime had issued invoices for an amount exceeding the threshold up to which such VAT-free regime applies. As a consequence, such company applied for VAT registration beyond the legal deadline: the tax authorities then issued a tax assessment for the VAT on taxable supplies that were in excess of the turnover threshold from the date that such threshold was exceeded until the date of registration.

According to the European Court of Justice, the national rule providing for a tax liability in case of violation of the registration obligation is in compliance with the directive.

Italian law related to the main object of a company is in breach of EU law

According to the European Court of Justice (decision on case C-276/2022 of 25 April 2024), Article 25(1), second sentence of L. 218/95, which provides for the application of the law of the Member State (in the case, Italy) where the main object of the activity of a company that has transferred its registered office to another Member State is located, is incompatible with the principle of freedom of establishment set forth in Articles 49 and 54 TFEU (Treaty on the Functioning of the European Union).

In the case at stake, an Italian srl, having as its “main object” the management of a property located in Italy (the company’s only asset), was transformed (in 2004) into a limited liability company under Luxembourg law with its registered office in Luxembourg: according to the Court, it represents a restriction on the freedom of establishment for a Member State’s legislation to provide for the application of its national law to the management acts of a company established in another Member State on the grounds that it carries out the main part of its activities in the first State.

In the view of the European Commission, the royalty paid by one subsidiary to the other under a licence agreement on the use of intangible assets artificially decreased the tax base of the first subsidiary and, thus, that of the Amazon group.

According to the ECJ, the Commission had not validly demonstrated the undue reduction of the tax burden.

The appeal was dismissed on the grounds that the Commission had wrongly determined the “reference system” (being the local transfer pricing regulation and not the OECD principles) for the purpose of qualifying the national measure as State aid.

The OCED issues a consolidated commentary on Pillar 2

On the 25 April 2024, the OECD has issued a consolidated commentary on the GloBE Rules.

The new commentary on Pillar Two does not contain any new clarification nor guidelines but it has combined the contents of the previous commentary with the administrative guidance issued by the OECD throughout 2023, and specifically the one published on  2 February 2023, on 17 July 2023 and on 18 December 2023.

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Fazzini Holzmiller & Partners