Prepared by Davide Accorsi, Stefano Luigi Airaghi and Federica Gadda
With the tax ruling reply no. 57/2023, published on January 17, 2023, the Italian tax authorities provided clarifications regarding the role assumed by an Italian permanent establishment (hereinafter also the “applicant”) in relation to an intra-community supply concluded by the German head office.
More precisely, the case concerns a sale of goods carried out by the foreign head office for which the Italian permanent establishment would take care of the negotiation and conclusion of the agreements as well as pre- and post-sale activities. The goods would be shipped directly from the head office in Germany to the final customer in Italy and the transport would be carry out by the Italian customer directly from the warehouse of the German head office or directly by the latter, without any passage through the warehouse of the Italian permanent establishment.
On this point, after preliminarily highlight that the correct VAT treatment of the case at hand implies an assessment of the role played in concrete by the Italian permanent establishment in the sale activities of the goods sold by the foreign head office, the Italian tax authorities recalled the content of Article 192-bis, Directive 2006/112/EC, implemented in Italy by Article 17, paragraph 4, Presidential Decree no. 633 /1972, and Article 53, Council Implementing Regulation no. 282/2011 and noted that from their combined provisions that a taxable person is deemed to be established in the Member State in which the tax is due if (i) the taxable person has, in that Member State, a permanent establishment; (ii) this permanent establishment is characterized by a sufficient degree of permanence and an appropriate structure in terms of human and technical means to enable it to carry our provision of services and supply of goods in which the permanent establishment intervenes; (iii) this permanent establishment has actually intervened in a supply of goods or services provided by the taxable person; (iv) the technical and human resources of the permanent establishment are used for transactions inherent in the performance of the taxable supply.
While specifying that the intervention of a permanent establishment in a supply of goods must be evaluate case-by-case, the Italian tax authorities also clarified that in case the means of the permanent established are used only for administrative support functions, it is not sufficient to consider the requirement of the permanent establishment’s intervention in the supply of goods as integrated and that, at the same time, the circumstance that the permanent establishment stipulate contracts in the name and on behalf of the head office or carry out marketing activities and take care of the customer relations is not in itself a symptom of its qualifying ”intervention” in the supply.
In the light of the above, with reference to the case at hand, the Italian tax authorities notes how the activity carried out by the applicant is connoted by a particular complexity especially in relation to the preparatory stages to the supply of the good object of the tax ruling, consisting of the negotiation of the contracts and their technical contents, influencing the definition of the characteristics of the goods supplied by the head office.
Therefore, considering that the contribution of the permanent establishment would seem to be relevant to the concrete determination of the quality, structure and functionality of the goods supplied by the head office, the Italian tax authorities retain that permanent establishment concretely intervenes in the transactions, carrying out a qualitatively qualifying role and operating with a relevant degree of autonomy from the head office.
Once the role of the permanent establishment has been clarified and its presumable intervention in the supply of goods carried out by the head office has been confirmed, the Italian tax authorities qualifies the transaction as an intra-community acquisition, overlooking the person who carry out the transport how does the article 38, paragraph 2, Law Degree no. 331/1993.
Considering that the condition of the permanent establishment’s intervention in the transaction is met in the case at hand, the Italian tax authorities retain that the permanent establishment should assume the role of tax debtor and the latter carry out an intra-Community acquisition from the head office and should carry out the obligations through the reverse charge mechanism, followed by a domestic supply towards the Italian final customer, applying the related VAT.
Such an approach, however, seems to be contrary with the discussion hypotheses drafted by the legal services of the European Commission in the Working Paper no. 857/2015[1], which, however, in the absence of the subsequent issuance of further guidelines on the matter by the VAT Committee, were not, in any case, considered as binding by the Italian tax authorities.
For the sake of completeness, the Italian tax authorities concludes by stating that where the permanent establishment would not intervene in the transaction, otherwise an intra-community purchase would be carried out by the domestic final purchaser directly to the head office. In such a case, the final customer would be required to fulfill the VAT obligations through the reverse charge mechanism, and it would not be possible to adopt the solution proposed by the applicant to voluntarily interpose the Italian VAT number of the permanent establishment, which would act “as the fiscal representative of the head office,” and report an intra-community deemed purchase according to article 38, paragraph 3, letter b), Law Decree no. 331/1993 followed by a domestic supply to the final customer with payment of the VAT by the latter trough the reverse charge mechanism according to article 17, paragraph 2, Presidential Decree no. 633/1972[2].
Such an approach, however, seems not to be fully in line with the possibility to “break” an intra-community supply into an intra-community deemed supply in the country of dispatch followed by an intra-community deemed purchase and by a domestic supply in the country of destination that has been endorsed, even if without commenting on the specific circumstance in which the seller has a permanent establishment in the country of destination, both by long-standing Italian tax authorities’ guidelines and by the cross border ruling no. 2014/10.
[1] That, inter alia, in the paragraph 3.3., reports that “The conditions set out under Article 192a of the VAT Directive and under Article 53 of the VAT Implementing Regulation do not target specifically domestic or intra-Community supplies. These two provisions do not, in any way, make reference to any of these two categories of supplies.
This is due to the fact that Article 192a of the VAT Directive and Article 53 of the VAT Implementing Regulation are only relevant in situations involving, on the one hand, a main place of business established in one Member State and, on the other hand, a fixed establishment and a customer located in another Member State. In fact, in a purely domestic supply, it would not be possible, nor would it be necessary, to apply these two provisions.
Therefore, in the Commission services’ opinion, the question of whether Article 192a of the VAT Directive applies only to domestic or also to intra-Community supplies is irrelevant”.
[2] In justification of the above, the Italian tax authorities highlight that article 44, paragraph 1, Law Decree no. 331/93 establishes, as ordinary mode to do the VAT in case of an intra-community purchase carried out by the domestic taxable person, the reverse charge mechanism applied by the latter, who becomes the person liable for the VAT ex lege.
The fulfillment of VAT obligations on the transactions under consideration by means of fiscal representative does not appear to be identified by law as an alternative form. The modalities of fulfillment by means of fiscal representative or direct identification, as per the article 44, paragraph 3, Law Decree no. 331/93, concern purchases and supplies carried out in the national territory by a taxable person not resident and, accordingly, do not include the case described in the tax ruling.
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