Italy: Cooperation and enhanced collaboration procedure (“CECP”)

Multinational enterprises (MNEs) may access the “cooperative and enhanced collaboration procedure” (“CECP”), providing for the opportunity of an open discussion between the Italian Tax Authorities (ITA) and large multinational groups doing business in Italy, in order to assess the risk of existence of a permanent establishment (PE) in Italy and its attributable CIT and VAT taxable base (Art. 1-bis of the Law Decree No. 50/2017).

In particular, foreign companies belonging to multinational groups with consolidated revenues exceeding EUR 1 billion per year may access the procedure at hand if the goods/ services sold/provided in Italy exceed the threshold of EUR 50 million per year and are supported by resident companies or domestic PEs.

MNEs already under tax audit or inspection in relation to the existence of a PE in Italy will not be allowed to access the procedure.

On April 16, 2019, the ITA implemented the CECP by releasing operational instructions along with the form to be filed for the relative application (Provvedimento Agenzia Entrate n. 95765/2019 and n. 660041/2019).

As a consequence, large MNEs are now actually enabled to trigger the procedure hereof in order to avoid any tax risk of doing business in Italy, should their activity imply a potential PE in said country.

In the event that – after (i) submission of the application request by the foreign company (followed by the filing of the relevant information/documentation), and (ii) a thorough discussion with the ITA – a PE is deemed to exist or to have existed in the still assessable past fiscal years, the ITA delivers to the requesting company a tax settlement call in order to define the CIT and VAT taxable base attributable to such PE.

If agreement on the taxable base is reached, the taxpayer benefits from a 50% reduction of the applicable tax penalties and full relief from criminal penalties applicable for missed tax returns. For instance, in the case of assessment of an undisclosed PE, ordinary tax penalties for missed tax returns range from 120% to 240% of the additional tax due, plus interest for late payment: the tax settlement procedure therefore implies (in addition to the criminal law relief referred to) the payment of (the agreed additional tax due, plus interest plus) a penalty of 20% of the agreed additional tax due (i.e. 50% of the reduced penalties to be applied in the case of the standard tax settlement procedure, which are equal to 1/3 of the minimum penalty provided by law, i.e. 120% – see above).