Italy: Proposed PE exemption for investment manager activities
Conditions for the permanent establishment exemption
Conditions for the permanent establishment exemption
The 2023 budget bill currently being considered by parliament includes a provision under which no agency or fixed place of business permanent establishment (PE) of a non-resident investment vehicle would be deemed to exist in ltaly provided certain conditions are met in connection with the activities of an investment manager.
An investment manager is a party that, in the name and/or on the behalf of a non-resident investment vehicle or its directly or indirectly controlled companies, also by exercising discretionary powers:
- Enters into contracts for purchasing, selling or negotiating financial instruments, including equity interests, derivatives and receivables
- Actively contributes, also through preliminary and ancillary/preparatory activities, to the execution of these transactions
The conditions for the PE exemption are as follows:
- The non-resident investment vehicle and its controlled companies must be resident or established in cooperative jurisdictions.
- The non-resident investment vehicle must meet the independence requirements to be identified by a future ministerial decree.
- The investment manager, operating in Italy, must not:
- Hold any position in any management or oversight body of the non-resident investment vehicle and its directly or indirectly controlled companies
- Be beneficially entitled to more than 25% of the profits of the investment vehicle (a ministerial decree will detail the criteria to compute this 25% rule).
- The resident investment manager must be remunerated at arm’s length for services provided to other entities of the group (proper transfer pricing documentation to be prepared and kept on file). The Italian tax authority will issue guidance on how to determine the arm’s length remuneration.
Final implementation of the proposed measure relies on future regulations to be issued by the tax authority, for which no deadline has been set.
Read a December 2022 report [PDF 256 KB] prepared by the KPMG member firm in Italy
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