Edited by Davide Accorsi and Martina Toscano
With ruling reply No. 193 of 2025, the Italian tax authorities have once again addressed the matter of the intervention of a fixed establishment of a non-resident entity in Italy.
As clarified in previous responses, the tax authorities confirm the possibility that the fixed establishment may be liable for VAT in Italy for sales of goods which, at the time of shipment to an Italian customer, are not located within the Italian territory (i.e., intra-EU sales made from another European Union Member State).
In such a case, based on the clarifications provided, the Italian fixed establishment should account for an intra-EU acquisition assimilated in Italy followed by a local supply subject to VAT. This interpretation could lead to inconsistencies compared to the approach of the European Union Member State from which the goods are shipped, as that country might consider the intra-EU supply as performed by the head office directly to the Italian customer[1].
The tax authorities also confirm that the same fixed establishment may be liable for VAT on certain sales and not on others, depending on the actual activities carried out in relation to each transaction.
The most significant point addressed in the reply concerns the possibility that the fixed establishment may be involved in purchases that are closely connected to sales in which it plays a material role, and, as a result, be liable for VAT. On this matter, the tax authorities specify that such an assessment must be made on a case-by-case basis, taking into account the nature and actual role assumed by the fixed establishment during the purchase phase.
Consequently, the intervention of the fixed establishment in purchases related to sales in which it has a material role cannot be taken for granted, since such a conclusion does not rest on the nature and function of the purchased product[2].
The case examined concerns a company established in a European Union Member State other than Italy, with a fixed establishment in Italy. This establishment has 16 employees who are responsible for selling the machinery distributed by the head office, as well as providing customer assistance.
The machinery, which is shipped from another EU Member State directly to Italian customers (taxable persons), can be divided into two segments: X1 and X2[3]. Regarding activities related to machinery in segment X1, the applicant clarifies that transactions are carried out according to criteria that “involve broad and autonomous intervention by the fixed establishment”.
In contrast, for activities related to machinery in segment X2, the applicant states that these are “performed exclusively by the head office and do not involve any participation by the fixed establishment”.
The Italian tax authorities, after reviewing the relevant regulations and recalling their main official documents on the subject[4], clarifies that:
- the fixed establishment is involved in sales related to segment X1, particularly for the following reasons attributable to staff in Italy: “i) autonomy in managing customer relations, including the ability to prepare and present contractual proposals without further revision by the relevant department; ii) discretion, albeit in line with the EMEA campaign/activity plan, in planning and carrying out marketing activities; iii) management and coordination of pre- and post-sales activities within the organization as well as defining growth strategies within the division; iv) authorization of prices and discounts”;
- on the contrary, the fixed establishment is not involved in sales related to segment X2, “as these fall exclusively within the remit of the head office”.
Finally, with regard to purchases and imports related to segment X1 carried out in Italy “thanks to the negotiation activity conducted exclusively by the head office with national and non-EU suppliers”[5], the Italian tax authorities believe that there is no involvement of the fixed establishment, since “the personnel of the Italian fixed establishment […] merely deals with the ‘evaluation of supply costs and profitability calculation’, the ‘coordination of suppliers and related purchasing and marketing compliance processes’, and warehouse updates.
While these tasks are aimed at identifying possible suppliers and assessing the economic convenience of purchasing a component and/or finished good, they are certainly distinct from activities related to the negotiation and conclusion of contractual agreements or those connected to the execution of contracts”.
In conclusion, the tax authorities focus on the obligations of the applicant in Italy, clarifying that it must keep separate registers for transactions in which the fixed establishment is involved and those in which it is not. Furthermore, two separate forms of the annual VAT return must be completed to reflect this distinction, although the transactions will jointly contribute to the monthly balance and settlement of the taxpayer.
To make an example, if in the month of August 2025 the applicant makes local purchases and imports relating to segment X1 for 100 euros, as well as sales concerning the same segment X1 with shipments sent directly from another EU Member State to a customer in Italy for 150 euros, and also made sales relating to segment X2 for 200 euros, once again with shipments sent directly from another EU Member State to a customer in Italy, the VAT accounting situation in Italy would be as follows.
This assumes that the applicable standard rate is 22% and that the fixed establishment is involved exclusively in sales of segment X1:
- local purchases and imports register (not pertaining to the fixed establishment): 100 euros (taxable basis), 22 euros (VAT credit);
- intra-EU purchases register (pertaining to the fixed establishment): 150 euros (taxable basis[6]), 33 euros (VAT credit and debt for the reverse charge on the intra-EU deemed acquisition);
- sales register (pertaining to the fixed establishment): 150 euros (taxable basis), 33 euros (VAT debt).
The balance and settlement for the applicant for the month of August will therefore amount to 11 euros due. The transactions related to the register referred to in item (1) will be recorded in a separate section of the annual VAT return from those related to the registers mentioned in items (2) and (3). Transactions concerning sales in segment X2 are reported in Italy as intra-EU purchases directly by the customer and do not appear in either the registers or the VAT return of the applicant.
Graphically, the same situation can be represented as follows:
The question that may arise is what the consequences would be if customs documents and invoices related to item (1) were booked in the ledgers and in the same section of the annual VAT return as the transactions relating to the fixed establishment. In the writer’s opinion, such a violation would be of a formal nature only, without affecting the right to deduct VAT. However, recent interpretations by the tax authorities regarding the booking of purchase documents and the right to deduct VAT still leave some doubts open[7].
[1] On this point, please refer to our previous newsletter at this link.
[2] Below, the practical implications of the interpretation provided by the Italian tax authorities will be examined, postponing to future occasions further analysis on the grounds of this interpretation, which raises some concerns not only regarding the aspect noted (namely, that in the opinion of the European Commission, a direct intra-EU supply to the Italian customer should in any case be recognized), but also regarding the reference to the concept of involvement in purchase transactions (whereas under EU law this concept appears to refer only to outgoing transactions), particularly in cases where the place of supply and the taxpayer liable for VAT is not changed by the possible involvement of the fixed establishment acting as the customer.
[3] The case is more complex and involves several divisions: Delta, Delta 1, and Delta 2, with the subdivision into segments X1 and X2 concerning only Division Delta 1. For the sake of simplicity, only the division related to the two segments is reported, as it is sufficient for a concise commentary regarding the intervention of the fixed establishment.
[4] The tax authorities specifically refer to the following articles: Article 17, paragraph four, of Presidential Decree 633/1972; Article 192a of Directive 2006/112/EC; and Article 53 of Regulation (EU) 282/2011. They also cite ruling replies No. 52/2021, 57/2023, 336/2023, and 374/2023.
[5] The applicant reports that, on occasion, it makes purchases of goods from Italian suppliers or imports products related to segment X1, which are transported directly by the supplier to the final national customer within the Italian territory.
[6] The taxable base for deemed intra-EU purchases should not be equal to the sale price, but rather “the purchase price or, failing this, the cost price of the goods or of similar goods, determined at the time these transactions are carried out”, pursuant to Article 43, paragraph four, of Legislative Decree 331/1993.
[7] See ruling reply No. 115 of 2025 and, for commentary, this link.
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