ITALY Law and Practice Contributed by: Giuliano Foglia, Foglia & Partners
• the notion of agent PE usually refers only to the case of persons habitually concluding contracts in the name of the foreign enterprise, without any ref - erence to the activities leading to those contracts. In respect to the last point above, it should be remarked that, in line with the observation made by Italy to the Commentaries on Article 5 (including that of 2017), Italy has always reserved the right to interpret, among others, the paragraphs of the Commentary dealing with the concept of “conclusion of contracts” by the agent (see paragraph 97 of the 2017 OECD Model) consistently with the case-law of the Italian Supreme Court of Cassation. Since the early 2000s, the Italian Supreme Court has adopted a broader interpretation of the agent PE scope, embracing all cases where a person habitually concludes or operates for the conclusion of contracts in Italy that are concluded abroad without material modifications by the non-resident enterprise, without requiring that such a person plays the principal role leading to their conclusion. In this respect, for exam - ple, in the leading Philip Morris case (Decision No 7682/2002), the Italian Supreme Court held, inter alia, that the participation of representatives or employ - ees of an Italian entity to the negotiation of contracts between a non-resident company and another resi - dent entity could fall within the notion of “authority to conclude contracts in the name of the company”, even if no power of representation is granted to the Italian entity. With the recent update to the 2017 OECD Model (dated 18 November 2025), Italy has eliminated the aforementioned observation, effectively opening the way to a more OECD-oriented interpretation of the provisions of its DTCs. 3. Taxation of Cross-Border Income 3.1 Income From Immovable Property Individuals Rental income from real estate assets is subject to income tax at progressive rates on 95% of the amount. However, taxpayers may elect to opt for flat taxation with a 21% substitute tax.
Income from real estate assets located abroad is included in taxable income and subject to progressive income tax rates. The taxable amount equals the net income subject to tax in the situs country. If no for - eign taxation applies, the taxable income equals the rental income minus a 15% forfeiture reduction. If the foreign real estate assets are not rented, no income taxes apply. Capital gains from the sale of real estate assets are not subject to income taxes in Italy if: • they have been used for the greater part of the time as the principal dwelling of the owner or his family; • they are sold after five years from the purchase/ construction (ten years from the end of the refur - bishment works, in case the assets have been sub - jected to certain refurbishment works that entitle the owners to tax facilitations); • they have been received by way of inheritance or donation. If real estate assets are sold within five years (ten years in the case of refurbishment works) of purchase/ construction, the related capital gains are subject to income tax at progressive rates. However, the tax - payer may elect, in the deed of sale, to apply a 26% substitute tax. Italian resident individuals shall also pay an annual wealth tax on the value of real estate assets held in foreign countries at 1.06% tax rate. Companies Generally speaking, income from real estate derived by companies constitutes business income and is subject to corporate income tax (“CIT”) pursuant to Article 81 of the ITC. 3.2 Business Profits Individuals Italian tax legislation regulates in detail the computa - tion of business income and the criteria for evaluating assets and liabilities forming the working capital of individuals and partnerships carrying on commercial activity. Relevant rules are generally those applicable for the purposes of CIT, with the specific exceptions expressly provided (see Article 56 of the ITC).
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