With the response to ruling 193 of July 24, the Revenue Agency provided further clarifications regarding the issue of VAT liability for operations carried out in Italy by the foreign parent company with a stable organization in Italian territory.
The specific case analyzed concerns a company active in the wholesale trading of scientific measuring instruments and equipment, operating in the EMEA area through the business segment “Gamma.” This segment is divided into three operational areas, namely:
- An area called Delta that deals with marketing activities;
- An area called Delta 1 that handles production, repair, and testing services;
- An area called Delta 2 that provides support services for the activities of Delta and Delta 1.
The Italian stable organization is actively involved in the activities of Delta and Delta 1, employing 16 employees. Of these, twelve are dedicated to commercial and technical management, with a high degree of operational autonomy, and based on their duties, they can formulate commercial offers directly to Italian clients without needing approval from the parent company. The other four employees deal with customer service, debt collection, and marketing activities.
In particular, the activity carried out in the Delta 1 area includes:
- the X1 segment related to the distribution and support of portable devices;
- the X2 segment, which refers to larger and customized systems; this segment of activity iS managed directly by the parent company without involvement from the stable organization in Italy.
Based on the analyzed case, the Agency clarified through the response to the ruling that:
- tax liability for VAT exists when the Stable Organization intervenes with a significant degree of autonomy in managing commercial relationships with clients, that is, when it carries out activities related to the preparation and presentation of contractual proposals independently of the parent company’s approval, when it independently manages marketing activities and coordinates sales operations;
- conversely, as described in the case of the X2 segment, if the sales activity is carried out exclusively by the Parent Company, the tax liability for VAT of the Stable Organization does not exist.
The Agency also specifies that purchases of goods made by the Parent Company and shipped directly to the end customer in Italy, even if related to sales for which the involvement of the stable organization is significant, are directly attributable to the parent company as they are made without the involvement of the stable organization.
From a compliance perspective, if the stable organization is considered liable for tax, the invoices issued by the parent company will be considered intra-community purchases, to be integrated and registered separately, and subject to Intrastat notification.
For domestic sales to Italian customers, the stable organization will issue electronic invoices, while in the case of activities carried out directly by the Parent Company, invoicing will be handled directly by the parent company to the Italian customer.
Difficulties remain in establishing on a case-by-case basis when the involvement of the stable organization is “qualifying.” In fact, to avoid these issues, many foreign companies in Italy (and Italian companies abroad) prefer to operate through a resident company in the territory rather than a stable organization.
From a legal perspective, the issue derives from Article 17, paragraph 2, of DPR 633/1972, which establishes that “the obligations related to the sales of goods and the provision of services carried out in the territory of the State by non-resident subjects towards taxable subjects established in the territory of the State (…) are fulfilled by the purchasers or clients.” This provision must be coordinated with paragraph 4, which specifies that “The provisions of the second and third paragraphs do not apply to transactions carried out by or towards non-resident subjects, provided that they are rendered or received through stable organizations in the territory of the State.”
This implies that only sales or service transactions in Italy carried out by the parent company are relevant for VAT purposes when the stable organization present in the country intervenes.
It is clarified that the parent company is not considered a subject established in Italy if the sale or service takes place without the involvement of the stable organization. To be considered the effective participation of the stable organization, the conditions outlined in Article 53 of Regulation EU 282/2011 must be concurrently met, namely:
- the Stable must have a sufficient degree of permanence and an adequate structure in terms of human and technical resources to carry out sales of goods or provision of services;
- the resources of the stable must be utilized for operations related to sales or services carried out in Italy, before or during the operation.
The complexity lies in the need to verify whether the involvement of the Stable is significant, thus requiring an analysis of the reality of the activities performed to determine tax liability.