ITALY Trends and Developments Contributed by: Paolo Ludovici, Marlinda Gianfrate and Luca Tortorella, Gatti Pavesi Bianchi Ludovici
The Italian investment management exemption: the legislative framework The 2023 Italian Budget Law amended Arti - cle 162 of the Income Tax Code regarding the domestic definition of permanent establishment. The new rules provided a legal presumption (a “safe harbour” ) under which activities carried out in Italy by the asset or investment managers of a foreign investment vehicle do not give rise to a permanent establishment if certain condi - tions are met. This applies even if the Italian (or even non-Italian, if operating in Italy through a permanent establishment) tax resident asset/ investment manager habitually – and with dis - cretionary powers – operates in the name of/on behalf of a non-resident investment vehicle or its controlled entities and: • concludes contracts for purchasing, selling or negotiating financial instruments, even deriva - tives, including equity or capital participations and receivables; or • contributes, including through preliminary activities, to the conclusion of such transac - tions. The independence presumption is valid if: • the foreign investment vehicle and its con - trolled entities are resident or located in a white list jurisdiction (a state or territory with adequate exchange of information); • the foreign investment vehicle meets specific independence criteria established by a dedi - cated Ministerial Decree issued on 22 Febru - ary 2024 (the foreign investment vehicle must be independent vis-à-vis its investors); • the asset or investment manager (i) does not sit on any managing and/or controlling cor - porate body of the non-resident investment vehicle and/or its controlled entities; and (ii) does not hold a participation in the economic
Permanent Establishment and Transfer Pricing: The Investment Management Exemption Regime Introduction Italian tax authorities have historically taken an aggressive stance in challenging deemed Ital - ian permanent establishments of foreign enti - ties, including in the asset management industry. In principle, investment funds do not conduct business activities (regarding the concept of the “carrying on of a business” , see Article 3 of the Organisation for Economic Co-operation and Development (OECD) model tax convention) but instead collect capital from investors and earn passive income. Consequently, their operations in a foreign jurisdiction should not give rise to permanent establishment exposure. However, there have been cases in which the Italian Rev - enue Agency (IRA) has not entirely ruled out the possibility of a foreign fund being deemed to have a permanent establishment in Italy, par - ticularly in cases where the fund manager lacks independence from the investors and engages in commercial activities. Therefore, with the purpose of incentivising and attracting foreign asset managers to Italy by ensuring there is more certainty in the Ital - ian tax environment (in addition to the already existing tax incentives to attract human capital and highly skilled individuals), the 2023 Italian Budget Law introduced a remarkable amend - ment to the domestic rules on permanent establishments, applying as of fiscal year 2024. In fact, subject to certain conditions, the newly introduced investment manager exemption (IME) rule allows an asset or investment manager to conduct activities in Italy without being classified as a dependent agent or fixed permanent estab - lishment of the non-resident investment vehicle.
224 CHAMBERS.COM
Powered by FlippingBook