The article 2 of Legislative Decree 209/2023 has modified the third paragraph of Article 73 of the Italian Income Tax Act (TUIR), concerning the tax residence of corporations and entities subject to corporate income tax in general.
Before the legislative change, a company was considered a tax resident in Italy if, for most of the tax period, it had at least one of the following three criteria:
- Registered office in Italy;
- Administrative headquarters in Italy;
- Business activities carried out in Italy.
Regarding business activities, the Italian Revenue and Custom Agency, with the note No. 48/E/2007, had stated that, in the case of a real estate company, the business activities coincided with the location of the real estate.
The consequence was that a company with a registered office abroad (and the administrative headquarter abroad) risked being considered a tax resident in Italy if it mainly owned real estates in Italy.
The lawmaker has now confirmed the criteria of the registered office but has removed the “problematic” criteria of business activities.
As regards the criteria of the administrative headquarters, there is now a sort of dual definition; the company has its tax residence in Italy if it has, primarily, the headquarters of the “effective management” and the ordinary management.
Effective management refers to the continuous and coordinated adoption of strategic decisions and ordinary management refers to the continuous and coordinated performance of ordinary acts. In the note 20/E, the Revenue and Custom Agency states that shareholders’ supervision and monitoring (out of management decisions) are not relevant for determining the effective management headquarters.
The criteria of ordinary management and effective management are alternative to each other.
This means that now a company is a tax resident in Italy if, for most of the tax period, it has at least one of the following three criteria:
- Registered office in Italy;
- Primarily the headquarters of the effective management (i.e., top management decisions) in Italy;
- Primarily the headquarters of the ordinary management (i.e., day-to-day decisions) in Italy.
Pointing out that the rule on so-called ” foreign dressing” (Article 73, paragraph 5-bis of the TUIR) has not been change, new regulations described above come into effect from the tax period following the one in progress on the date of publication of the Decree, therefore from the tax period following that in force on 28.12.2023.
Casale Monferrato, November 25, 2024
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