LED Taxand, Taxand Italy, highlights the top 5 changes introduced by the 2018 Italian Budget which will impact multinational enterprises.
The key changes introduced by the 2018 Italian Budget impacting multinational enterprises relate to:
Web tax – Starting from 2019 a new tax on digital services provided to Italian enterprises and Italian permanent establishments of foreign entities is introduced. Definition of digital services will be specified by an implementing Decree. Web tax will be levied at 3% rate on the value of each transaction. It will apply to resident and non-resident digital service providers which in a calendar year carry on more than 3.000 transactions.
Definition of permanent establishment – The domestic definition of permanent establishment (PE) has been amended in line with the OECD’s recommendations included in the 2015 Final Report on BEPS Action 7. In particular, the Budget Law: (1) qualifies as PE also a significant and continuous economic presence in Italy which does not result in a physical presence; (2) introduces an anti-fragmentation rule; (3) in relation to the list of excluded activities, introduces the condition under which such activities must be of a preparatory or auxiliary nature; (4) extends the definition of agency PE. The new definition of PE seems not fully in line with the Italian reservations under the OECD Multilateral Convention.
Interest limitation rule – The interest limitation rule has been amended in line with art. 4 of the EU Anti-Tax Avoidance Directive (2016/1164). From FY 2017, dividends received by controlled foreign companies are no longer included in the calculation of the EBITDA for interest limitation purposes.
VAT group regime – Italian VAT group regime has been amended to implement the principles of the ECJ Case Skandia (C-7/13). As a consequence, supplies of goods and services carried on between a head office and its branch are relevant for VAT purposes if the head office or the branch are part of an Italian VAT group.
Recharacterisation rule for registration tax purposes – According to the new rule, registration tax applies on the intrinsic nature and legal effects of each single deed subject to registration. In this respect, for example, tax authorities should no more recharacterise a sale of shares (subject to EUR 200 registration tax) into a sale of business going concern (subject to registration tax at proportional rates).
The key opportunity for multinational enterprises is to invest in a tax environment, which is more certain (recharacterisation rule for registration tax purposes) and in line with the OECD BEPS Actions (definition of permanent establishment), EU Anti Avoidance Tax Directive (interest limitation rule) and ECJ cases (VAT group regime).