Tax Treaty Case Law around the Globe 2013

S. 73 Italy: Can agent activities of an Italian Subsidiary constitute a Permanent Establishment of Its Foreign Parent?

Pasquale Pistone

1. S. 75 Introduction

This judgement was decided on 29 February 2012 and published on 9 March 2012. It is the latest judicial development in a long saga of pronouncements concerning the re-characterization of Italian subsidiaries as permanent establishments of their foreign parent companies.

The relevance of this judgement is twofold. First, it reverses the judicial trend started by the Italian Supreme Court (Corte di Cassazione) in 2000 with the Philip Morris judgement on the subsidiaries as PEs, by concluding that the mere entering into contracts in the name of the parent company does not in itself turn a subsidiary into the permanent establishment of the former company. Second, the Corte di Cassazione has specifically included a reference to the Commentaries on the OECD Model Convention in the motivation of its judgement, endorsing their content and invoking them as an additional resource to back up the Court’s view and the consistency of its interpretation with the international tax practice.

The applicable tax treaty between Italy and the Netherlands incl...