PUBLISHED BY Arlati Ghislandi
Foreign companies in Italy: tax substitutes only with a permanent establishment

Answering petition no. 312 of 24th July 2019, Agenzia delle Entrate provides clarifications on the obligation, for a Spanish company with an employee in Italy, to act as withholding agent for income tax purposes despite lacking a permanent establishment.
The reply - apparently innovative compared to the past - is formulated pursuant to article 23, c. 1 DPR no. 600/1973 which includes, among withholding agents (therefore required to pay whitholding tax) “institutions and companies listed in article 87 (now article 73)” of TUIR”.
According to said law, non-resident entities in Italy are included among tax withholding agents.
However, with a subsequent reference to a circular message issued by the Ministry of Finances (December 23, 1997, no. 326, par. 3.1), the reply confirms that these subjects “assume the status of withholding agent, limited to the income paid by their permanent establishment or fixed base in Italy”.
According to the aforementioned principles, Agenzia delle Entrate, in this case, comes to the conclusion that, given the lack of a permanent establishment in Italy, the aforementioned Spanish company, not having the role of withholding agent, “is not required to withhold income tax to the salary paid to its employee in Italy ”.
Instead, if Italian employees hired in Italy are entitled to sign contracts on behalf of the Company and de facto exercise this power, it should be assessed whether the company has a permanent establishment in the State, even in the absence of a fixed structure.