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Tax treatment of income produced by a non-resident consultant for activities rendered to an Italian Ministry

Clarified the tax treatment of self-employment income produced by a person resident abroad for a consultancy activity rendered to an Italian Ministry.

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The Italian Revenue Agency, in its reply to ruling No. 285 of 20 May 2022, has provided clarifications for the hypothesis in which a non-resident consultant uses the logistic structures present at the Minister’s direct collaboration Offices, thus fulfilling the requirements of the existence of a “fixed seat” of business in Italy, stating that it will be necessary to apply the withholding tax at the rate of 30 per cent on the fees paid.

The rules provided by art. 25, c. 1 and 2, of d.P.R. no. 600 of 1973

Withholding agents who pay to persons resident in the territory of the State remuneration, however denominated, for self-employment services, even if they are not habitually exercised or are rendered to third parties or in the interest of third parties or for the assumption of obligations to do not to do or to allow must operate at the moment of payment a withholding tax of 20 per cent by way of advance payment of the IRPEF due by the recipients, with the obligation of recoupment, and that if the fees and other sums referred to in the preceding paragraph are paid to non-resident persons, a withholding tax of 30 per cent must be applied, even for services rendered in the fiscal year of a business [Article 25, paragraphs 1 and 2, of Presidential Decree no. 600 of 1973]

Compensation for self-employment services performed abroad and those paid to permanent establishments in Italy of non-resident persons are excluded.

For the purposes of the application of IRPEF to non-residents, it should be noted that, pursuant to Article 23(1)(d) of the Income Tax Law (TUIR), self-employment income deriving from activities exercised in the territory of the State is deemed to be produced in the territory of the State.

Therefore, the criterion of the place where the work is carried out is followed, meaning that only remuneration paid to non-resident self-employed workers for work carried out in Italy is taxable in Italy.

The reply to ruling. no. 285 of May 20th 2022

In its answer to ruling No. 285 of 20 May 2022, the Revenue Agency emphasised that the domestic legislation must, however, be coordinated with the international provisions contained in the Convention for the Avoidance of Double Taxation. In the present case, since the petitioner is a professional resident in the Netherlands, it is also necessary to comply with the provisions of the Convention concluded between Italy and the Netherlands.

The treaty rule provides that remuneration derived from professional activity is taxable only in the State of residence of the professional, unless the professional habitually has a fixed base for the exercise of his activity in the Contracting State from which the remuneration arises. In such a case, the income may also be taxed in the Contracting State but only so much of it as is attributable to that fixed base. The concept of “fixed base” must be assimilated to the concept of “permanent establishment”, i.e. a fixed place of business where the professional carries on business wholly or partly independently.

Therefore, in the event the Consultant uses the logistic structures present in the Offices of direct collaboration of an italian Minister, thus fulfilling the requirements of the existence of a “fixed base” of business in Italy, it will be necessary to apply the 30% withholding tax on the fees paid.

For what concerns the VAT treatment, in case the Ministry does not have a VAT registration number, it is deemed that the described conditions for considering the provision of services territorially relevant in Italy are not met. The foreign service provider will therefore have to issue an invoice charging VAT according to the rules in force in the foreign country.

Regulatory Framework

Double taxation agreements between Italy and the Netherlands

Reference

Reply to ruling no. 258 of 20 May 2022

Reference

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