With Tax Ruling No. 193/2025 the Italian Revenue Agency outlined the key principles to be considered for VAT purposes when a permanent establishment (PE) is involved in transactions relating to the supply and acquisition of goods deemed territorially relevant in Italy.
Although permanent establishments lack separate legal personality and must follow the directives of their parent company, they may still obtain a degree of operational autonomy sufficient to directly attribute certain transactions to them. This raises the issue of identifying the party responsible for the related tax obligations.
To this end, an assessment is required as to the actual role played by the permanent establishment in a given transaction. A “qualifying and active” role in a business transaction results in the PE being considered a VAT taxable person, with all the resulting obligations, including potential application of the reverse charge mechanism (under Article 17(2) of Presidential Decree No. 633/1972).
On this point, the principle expressed in the ruling is that “what qualifies the involvement of the permanent establishment in a transaction is the specific nature of the role it plays in the commercial operation” thus establishing an assessment criterion based on the function performed by the PE, rather than the nature or purpose of the goods being transacted.
In the absence of involvement by the PE, the transaction is directly attributable to the parent company, which must then assume the related tax obligations.
More specifically, in its response the Italian Revenue Agency concurs with the solution proposed by the applicant – a permanent establishment in Italy of an EU-based company – in overcoming the approach laid out in VAT Committee Working Paper No. 857/2015 and addressing related interpretative doubts concerning the PE’s role in transactions relevant for Italian VAT and the corresponding compliance obligations.
Regulatory Framework
The legal provisions relevant in assessing whether a permanent establishment’s role in a business transaction is “qualifying” include:
- Article 7(1)(d), Presidential Decree No. 633/1972, which defines, for VAT purposes, a taxable person established in Italy to include foreign entities with a permanent establishment in Italy, but only with respect to transactions carried out by or for such PE;
- Article 17(2), Presidential Decree No. 633/1972, under which VAT obligations on supplies of goods or services made in Italy by non-resident entities to Italian VAT payers are fulfilled by the purchasers or recipients (reverse charge). However, the subsequent paragraph 4 excludes this rule when the transactions are carried out by or through a permanent establishment in Italy;
- Article 192-bis of Directive 2006/112/EC, which provides that if a taxable person carries out a supply of goods or services in an EU Member State where it has a permanent establishment, but the PE does not intervene in the transaction, then the taxable person is not considered established in that Member State for VAT purposes;
- Article 53 of Council Implementing Regulation (EU) No. 282/2011, which clarifies that a PE is considered to be involved in a supply only if:
- those resources are used by the taxable person for operations related to the supply of goods or services prior to or during the relevant transaction.
The Need for a Case-by-Case Assessment of the PE’s Actual and Relevant Role
As reiterated in several recent rulings by the Italian tax authorities (see Rulings No. 52/2021, No. 57/2023, No. 336/2023, No. 374/2023), the determination of whether a PE plays a qualifying role in a transaction cannot be based on abstract or predefined criteria. Instead, a concrete evaluation is required regarding the effective and relevant involvement of the PE in each specific case.
In transactions involving the sale of goods owned by the parent company to Italian customers – as in the case brought before the tax authority by the applicant – the Italian Revenue Agency considered that “the role played by the Italian permanent establishment in the completion of the above commercial transactions qualifies as a qualifying role”.
This conclusion was supported by several elements, including:
- the independent management of customer relations;
- the broad discretionary power in planning marketing activities;
- the management and coordination of pre-sale and post-sale operations; and
- the discretion to grant discounts and negotiate pricing.
In such cases, where the PE’s involvement is concrete and substantial, it must fulfill the related VAT obligations on intra-EU purchases made from the parent company.
Conversely, for all other transactions solely attributable to the parent company, in which the Italian PE does not play a qualifying role, no tax obligations arise for the PE. Instead, the parent company will be responsible for directly invoicing the Italian customers for those sales.
Compliance Obligations of a Permanent Establishment in Italy
Regarding VAT compliance, the Revenue Agency endorsed the applicant’s proposed approach, recognizing the need to distinguish between transactions attributable solely to the parent company and those attributable to the permanent establishment, ensuring separate recording in the VAT registers and in a dedicated section of the annual VAT return.
Accordingly, the Italian PE must record the intra-EU purchase invoices issued by the parent company that are relevant for VAT purposes in Italy in a dedicated sectional VAT register. The resulting VAT – whether as input or output tax – arising from transactions in which the PE plays a qualifying role, must be included in the periodic VAT settlement.
