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Enhanced Cooperation and Collaboration Procedure: April 16 Marks its Launch in the Italian Law

The Decision of the Commissioner of Italian Revenue Agency No. 95765 issued on April 16, 2019 marks the start of the enhanced cooperation and collaboration procedure aimed at encouraging dialogue with foreign companies operating in Italy in relation to the subject of permanent establishment.

With the issuance of the Decision of the Commissioner of Italian Revenue Agency dated April 16, the enhanced cooperation and collaboration procedure, envisaged in the corrective maneuver of 2017, comes to life. The mentioned Decision identifies both the procedural modalities and the possible consequences that could emerge from the dialogue with Tax Authorities

The procedure is addressed to foreign companies that recognize the possibility that their activities carried out in the Italian territory may constitute a permanent establishment in Italy. The Institute is addressed to operators that are part of multinational groups recording consolidated revenues exceeding one billion euros per year and that have carried out sales of goods and services in Italy for an amount exceeding fifty million euros annually, by using support auxiliary companies. However, the access to this procedure is not allowed to companies that, despite the presence of the mentioned requirements, were already aware of accesses, inspections, verifications and criminal proceedings regarding the configuration of a permanent establishment in Italy.

The application for the Institute, to be implemented through the presentation of the specific application form and followed by a preliminary investigation to ascertain its admissibility, envisages the organization by the competent Office (Ufficio Adempimento Collaborativo della Direzione Centrale Grandi Contribuenti) of dialogues relating to the procedure aimed at assessing, in contradiction with the applicant, the existence of the requisites that constitute a permanent establishment on the Italian territory and determining, in contradiction with the applicant, the incomes and the tax base for value added tax purposes on transactions attributable to the permanent establishment itself. The preliminary investigation is concluded with the issuance of a conclusive act in which are exposed the conclusions achieved that have led to establishing/excluding the permanent establishment in Italy.

This new Institute reflects the will of the Legislator to intend the traditional type of control as only a possible moment in the relationship with the taxpayer, promoting instead forms of preventive and advanced dialogue with the taxpayer that lead to a configuration of the tax claim based on a consensual and participatory logic.

The procedure, if compared to other preventive measures provided by the Italian system and which are typically aimed at new foreign investors, refers to subjects that already operate in the Country.

If on one hand the process presents some advantageous aspects from a criminal tax point of view, in the Decision of the Commissioner is shown how also in the case in which the assessment has excluded the existence of a permanent establishment,  the same will limit tax authorities only in the case in which factual and legal circumstances on which the assessment has been carried out have remained the same. In fact, if after the issuance of the preliminary investigation, an incomplete or untrue representation of the circumstances presented by the foreign company in the request and in the subsequent investigation is found, the original act will not produce any legal effect starting from the date of original effectiveness.

Moreover, even in the case in which the existence of a permanent establishment has been excluded, where the existence of potential tax risks referring to transfer pricing will be detected by the competent Office, this will transmit its acts to the  territorial office of reference in order to make possible for the latter to conduct the necessary in-depth investigations, therefore prefiguring potential investigations in this area.

The introduction of the measure highlights the will of the Italian tax authorities both to increase the moments of contradiction with the taxpayer through forms of participatory and consensual confrontation aimed at bringing out new taxable income and to create a scenario of greater certainty for the multinational companies that have already chosen Italy for conducting their business.

 

Matteo Coppola              
Transfer Pricing Manager - Milan   

 

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