Can Preparatory/Auxiliary Activities be a Permanent Establishment in Italy?

By Roberto M. Cagnazzo, Three & Partners Auditing & Accounting

The Italian Supreme Court has recently stated that the situation in which a de facto director carries out a plurality of activities in the Italian territory that represent a complete cycle with its own economically significant result for the foreign company, must be considered a permanent establishment. The execution of a business activity must be intended, in a broad sense, to include all those services or any activity referable to the economic interest of the foreign company in Italy.

The Court, moreover, confirms the key criteria for identifying on a substantial and factual basis the existence of a permanent establishment in the territory of the state. In fact, it clarifies that the Consolidated Income Tax Code provides that the existence of a permanent establishment in Italy of a foreign company occurs when:

  • There is an offce in the territory that is stable and connected to the exercise of an economic business activity able to produce income;
  • The activity is carried out through a representative with the power to conclude contracts on behalf of the non-resident company.

In reaffirming these basic principles, the Court goes further, stating that, in order to be defined as merely preparatory or auxiliary, the activities must be aimed exclusively at the company and its internal functioning, without constituting an autonomous centre of income imputation. Therefore, the services rendered to a third party or to other companies belonging to the group cannot be qualified as such.

Finally, the judges underline that, to be considered a permanent establishment, a fixed offce of a foreign company does not necessarily have to carry out an activity similar to that of the parent company; it is suffcient, in fact, that the business activity carried out is referable to the economic interest of the parent company, with the consequent achievement of an independent taxable result.

Roberto M. Cagnazzo

Roberto M. Cagnazzo

GGI member firm
Three & Partners
Auditing & Accounting, Corporate Finance, Tax
Torino, Italy
T: +39 011 580 83 52
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Three & Partners is a boutique firm based in Turin and deep-rooted in the North West of Italy but with a clear European identity and a strong international vocation. The firm provides integrated tax, corporate, legal, and business advice and assistance all over Italy on a wide range of domestic, European, and international matters.

Roberto M. Cagnazzo, Founder and Partner, is a chartered accountant and statutory auditor with a considerable experience in domestic and international taxation acquired as Head of Tax in some of the leading Italian multinational groups and as Professor of Comparative Tax Systems and of Tax Law at the University of Turin.

Published: International Taxation Newsletter, No. 14, Spring 2021 l Photo: andersphoto -

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