Italy

The tax regime for non-resident companies having PEs in Italy is the same as for corporate Italian entities (e.g. joint-stock companies). Accordingly, a PE is subject to IRES as well as to IRAP. Both taxes are determined on the basis of a specific statutory account prepared according to the accounting principles applying to resident enterprises with similar business activity carried out by the PE.

Transfer pricing principles apply to ‘transactions’ between the head office and its Italian PE. A PE is considered a functionally separate entity, independent from its headquarters, and a PE’s profits and ‘free capital’ are attributed to it on the basis of OECD principles.