ITALY Law and Practice Contributed by: Marco Valdonio and Gabriella Cappelleri, Maisto e Associati
two-pillar solution for reforming the international tax rules, to be implemented in 2023. In support of this agreement, Italy (and other coun - tries, such as Austria, France, Spain and the United Kingdom) and the United States signed on 21 October 2021 a transitional agreement to move from the cur - rent system of taxation of digital services to a new multilateral solution: the United States has to stop the trade measures against Italy and the other sign - ing countries, and the latter will have to allow a certain method to credit the digital services tax paid against the Pillar One liability in order to avoid double taxa - tion, once the Pillar One rules are implemented. Fur - thermore, Italian legislation on a digital services tax already sets out the repealing of the digital services tax once the political agreement on digital economy taxation is implemented. Generally, it is expected that these initiatives could have an impact on domestic legislation, which could be subject to amendments when the work on the two- pillar solution is complete and the Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for MNE groups and large-scale domestic groups in the Union is imple - mented. This Council Directive has been incorporated into Italian legislation through the Legislative Decree of 27 December 2023, No 209. The Legislative Decree empowers the minister of finance to issue second - ary regulation. The minister of finance has issued five decrees dealing with: • safe harbour (mainly CbCR transitional safe har - bour (TSH)); • Italian qualified domestic minimum top-up tax (QDMTT) (expected to be qualified and eligible for the safe harbour status); • substance-based income exclusion (SBIE); • administrative guidelines approved within the Inclu - sive Framework; and • treatment of deferred taxation generated in the period prior to the implementation of the global anti-base erosion (GloBE) rules. 9.5 Pillar One Amount B As of today, no official position or implementing guid - ance has been issued in Italy with respect to Pillar
One Amount B, and the IRA appears to be in a phase of internal assessment. In light of the fact that Pil - lar One Amount B is conceived as an annex to the OECD Guidelines (starting from 1 January 2025), and in view of Italy’s well-established tendency to align its transfer pricing framework and administrative practice with OECD soft-law instruments, the Italian system is currently awaiting official clarification, which appears necessary in order to ensure legal certainty for MNEs. 9.6 Entities Bearing the Risk of Another Entity’s Operations As a general rule, Italy applies the OECD Guide - lines on risk, recognising a return to the entity actu - ally assuming the risk. Through functional analysis, it also takes into account how related parties involved in a controlled transaction operate in relation to the assumption and management of the specific, eco - nomically significant risks, identifying in particular who performs control functions and risks mitigation functions, who bears the consequences arising from the risk outcomes, and who has the financial capacity to assume the risk. 9.7 Allocation of Profits to Permanent Establishments (PEs) The Italian legal framework is largely aligned with the “Authorised OECD Approach” (AOA), as set out by the OECD in the Report on the Attribution of Profits to Permanent Establishments of 22 July 2010 (the “AOA Report”). In this respect, the AOA has been express - ly incorporated into Italian law through Legislative Decree No 147/2015 (the so-called “Internationalisa - tion Decree”), which amended Article 152 of the ITC. Pursuant to this provision, a permanent establishment is treated as a functionally separate entity, and prof - its must be attributed in accordance with the arm’s length principle, consistent with the OECD Guidelines. Italy does not apply general safe harbour rules for the allocation of profits to permanent establishments; profit attribution is instead carried out on a case-by- case basis, following a functional and factual analy - sis aligned with the AOA Report. However, in certain specific sectors – most notably the banking sector – the IRA has issued detailed administrative guid - ance (Director of the IRA, Provision of 5 April 2016, No 49121) on the attribution of profits and capital to Ital - ian permanent establishments of non-resident banks.
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