New investment management exemption in Italy
Roberto M. Cagnazzo
by Roberto M. Cagnazzo
Italy’s 2023 budget law introduced changes to the domestic provisions on permanent establishments to introduce the so-called investment management exemption.
The purpose of this provision, which is also present in other jurisdictions, is to prevent entities managing investments in Italy on behalf of non-resident vehicles (asset managers) from acquiring the status of an Italian permanent establishment for those vehicles.
The exception provided by the investment management exemption, in addition to exceptions already provided by the negative list of domestic provisions for material permanent establishments, is also applicable to personal permanent establishments, and operates essentially in both areas.
Regarding the second area, it is envisaged that entities (including non-resident ones) that habitually enter purchase, sale, or trading contracts in the name of, or on behalf of a non-resident investment vehicle, or otherwise contribute with preliminary or ancillary operations to the purchase, sale, or trading of shares, financial instruments, derivatives, and credits, shall be considered independent. Essentially, this provision further clarifies the concept of an independent agent, which refers to an intermediary with legal and economic independence who acts on behalf of a non-resident entity within the scope of their ordinary course of business.
The second amendment aims to prevent the identification of a material permanent establishment of a foreign enterprise in Italy because of the normal existence of a fixed place of business of its investment manager. Accordingly, it is specified that such a fixed place of business shall not be considered at the disposal of the foreign investment vehicle merely because the activities conducted there benefit said vehicle.
However, the investment management exemption is subject to several conditions:
The first condition refers to the location of the non-resident vehicle. It must be resident or located in a state or territory belonging to the whitelist to ensure the effectiveness of any controls.
Secondly, the non-resident investment vehicle must meet specific independence requirements established by a decree from the Ministry of Economy and Finance.
Thirdly, the individual carrying out activities in Italy on behalf of the non-resident investment vehicle must not hold positions in the administration and control bodies of the investment vehicle, and its direct or indirect subsidiaries and must not hold a stake in the economic results of the vehicle itself exceeding 25%.
Finally, the fourth condition concerns the remuneration of the asset manager. The asset manager must receive remuneration for activities carried out in Italy, supported by the documentation required for transfer pricing.
Based on the wording of the law, it is clear that these four conditions must be met not only to exclude the status of dependent agent of the asset manager, but also to exclude the existence of an Italian physical permanent establishment.
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Three & Partners is a boutique firm based in Turin and deep-rooted in the north-west of Italy, with a clear European identity and a strong international vocation. The firm provides integrated tax, corporate, legal, and business advice, and assistance all over Italy on a wide range of domestic, European, and international matters.
Roberto M. Cagnazzo, Founder and Partner, is a chartered accountant and statutory auditor with considerable experience in domestic and international taxation acquired as Head of Tax in some of Italy’s leading multinational groups, and as Professor of Comparative Tax Systems and of Tax Law at the University of Turin. Contact Roberto.
