Tax Treaty Case Law around the Globe 2014

S. 17Chapter 2 Italy: Italian PE of Slovenian Citizen Who Acted as Tourist Intermediary for a Slovenian Ski Club

Guglielmo Maisto

2.1. Introduction

The existence for tax purposes of a permanent establishment (PE) is the primary way of securing the taxation of business income derived by non-residents in the source state. This principle is stated in article 7 of the OECD Model that stipulates that a contracting state cannot tax the profits of a resident of the other contracting state unless it carries on in whole or in part the business of its enterprise through a PE situated therein. In this context, one should also consider that in the context of article 5(1) of the OECD Model, the term "enterprise" covers any form of business organization, e.g. company, partnership, sole entrepreneur or other legal form.

In Italy as well as in several other jurisdictions, the PE criterion is also used for the purposes of domestic sourcing rules, i.e. rules that are used to determine the territorial link to tax income attributable to non-residents (article 23(l)(e) of Presidential Decree 917 of 22 December 1986). Also in this context, the business organization of the non-resident, i.e. the status of sole en...