Investment in Italy

Investment in ItalyPartial or total violation of the agreement leads to its cancellation. Furthermore, should therebe any material changes in the facts or law, the agreement will be rescinded. Therefore, thetaxpayer is asked to inform the Revenue Office periodically of any changes and to give itfree access to the company.Before the ruling expires, the taxpayer can submit an application to renew the agreement.Modification of the agreement and its renewal can both imply an inquiry or further debatebetween the Revenue Office and the taxpayer.With regard to a transfer pricing ruling, it will be necessary to illustrate the criteria and themethods to be used in calculating the arm’s length values of the transactions in question,also indicating why they are considered to be in accordance with the law. The relevantdocumentation will also have to be produced. If the ruling regards other matters, thetaxpayer must indicate in its application which of the legally available solutions it advocates,and explain why it considers this solution to be in accordance with the law.5.2Partnerships5.2.1Determination of taxable incomeIncome produced by non-corporate entities resident in Italy, such as partnerships, is attributedfor tax purposes to each partner in proportion to his percentage of ownership even if noactual distribution takes place (i.e. they are treated as fiscally transparent). The ordinary rulesfor the computation of business income are used to determine the partnership’s taxableincome.The partnership itself is only subject to IRAP.5.3Permanent establishments5.3.1Definition of permanent establishmentThe 2004 Italian tax reform introduced the concept of PE, which is essentially that describedby the OECD Model Tax Convention.5.3.2Determination of taxable incomeAn Italian PE of a foreign entity is subject to both IRES and IRAP on income from business in Italy. Thetaxable income is calculated in accordance with the same rules applicable to resident corporations.No branch remittance tax is currently imposed on net profit transferred to the head office, regardlessof whether or not the latter is located within the EU.Under domestic law, the branch may also attract income produced by a foreign entity in Italy and onlydeemed to pertain to the branch (force of attraction rules), unless the foreign entity qualifies for taxtreaty protection (usually treaties concluded by Italy include attributable income limitation clauses).© 2012 KPMG S.p.A., KPMG Advisory S.p.A., KPMG Fides Servizi di Amministrazione S.p.A., KPMG Audit S.p.A., Italian limited liability share capital companies, and Studio Associato Consulenza legale e tributaria, anItalian professional partnership, are member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.53