Foreign permanent establishment: the legal title is irrelevant

The concept of permanent establishment

A permanent establishment (p.e.) represents that “minimum connection criterion” functional to attract and anchor a business in a state, for the purpose of allocating taxing rights between the state where the income is sourced (where the p.e. “subsidiary” is located) and the state of residence of the business where the “parent company” is situated, thus qualifying the p.e. not as an entity with autonomous and distinct legal personality from the parent company, which it represents as an administrative branch, but highlighting its fiscal autonomy (see article 23, paragraph 1, letter e) of the TUIR).

The p.e., therefore, although organically framed at the civil law level within the parent company (see ECJ in C-210/04, p. 41), has its own tax autonomy for the purpose of determining the allocation of income for the economic activity carried out in the territory (see article 152, paragraph 2, of the TUIR).

Taxation within the state is therefore possible only where a p.e. is present and operational within the state where the business income is produced, as a consequence of an effective anchoring in the territory and its economic fabric.

The internal definition of p.e., contained in article 162 of the TUIR, originates from article 5 of the OECD Model Convention (incorporated into numerous bilateral treaties against d...