Italy's value added tax (VAT) group scheme recently took effect. The scope of application, conditions and implications of the VAT group scheme are different from the existing VAT consolidation scheme. Contrary to the VAT consolidation scheme, where each entity remains not only independent from a juridical point of view, but also a single taxable person, a VAT group is considered a single VAT taxpayer and the participating entities are jointly and severally liable for VAT (and interest and penalties) to the tax authorities.
Italy recently implemented the recommendations set out in the Organisation for Economic Cooperation and Development's Additional Guidance on the Attribution of Profits to Permanent Establishments regarding the definition of a 'permanent establishment'. Article 162 of the Income Tax Code now includes a negative list of activities that do not constitute a permanent establishment, the anti-fragmentation rule and details of the requirements that give rise to a permanent establishment.
The Tax Administration can now introduce unilateral corresponding downward adjustments to eliminate double taxation where a foreign tax authority makes a primary adjustment as a result of applying the arm's-length principle to transactions involving associated enterprises in a different tax jurisdiction. This new administrative procedure aims to accelerate the resolution of double taxation deriving from transfer pricing adjustments under mutual agreement procedures.
The new principles introduced by Actions 8 to 10 of the Base Erosion and Profit Shifting project have been reflected in Italy through Decree-Law 50/2017's amendments to Article 110(7) of the Income Tax Code. The new article includes a specific reference to the arm's-length principle and provides for implementing provisions to be issued by the Ministry of Finance to align with international best practices.
The Budget Law 2018 introduced, among other things, amendments to the tax regime concerning dividends from non-resident companies located in low-tax jurisdictions (ie, blacklisted companies). 'Blacklisted companies' are entities resident or located in jurisdictions other than EU or European Economic Area member states, whose ordinary or special tax regime grants a nominal tax rate that is 50% lower than the Italian one.