Bloomberg Tax
March 15, 2023, 7:00 AM

Italian Investment Management Exemption Aims to Provide Clarity

Giuliana Polacco
Giuliana Polacco
Bird & Bird

The Italian 2023 Budget Law (Law 197 of Dec. 29, 2022) introduced a significant amendment to the definition of permanent establishment, aimed at providing certainty and clarification for the asset management sector—the investment asset management exemption. The new provision clarifies the conditions for excluding the presence of a permanent establishment in Italy for an investment vehicle operating there through an independent person that carries out management investment activity (an asset manager).

The new provision is effective as of Jan. 1, although implementation rules are still needed to provide practical indications on the application of the law.

Private equity structures, or more generally financial investment structures, that normally tend to split risk and management between different countries although maintaining a unitary investment structure, were in the past subject to significant tax risks. These risks derived from the fragmentation of the structures’ activity, which was often considered as creating relevant value in a jurisdiction, especially where an asset manager was located.

Definition Pre-2023 Budget Law

Before the 2023 budget law was enacted, the definition of permanent establishment under the dependent agent concept referred to persons acting in Italy on behalf of a nonresident enterprise and habitually concluding contracts, or acts for the purpose of concluding contracts, without substantial modification by the foreign enterprise and in the name of the foreign enterprise; Article 162, paragraph 6, Presidential Decree 917/1986, the “CITT.”

A permanent establishment could not be identified where the person carrying out activity in Italy on behalf of a nonresident enterprise conducted their business as an independent agent, and acted for the enterprise in the ordinary course of its business. However, when a person acted exclusively or almost exclusively on behalf of one or more enterprises to which that person was closely related, they wouldn’t be considered an independent agent, within the meaning of this subparagraph, in relation to each such enterprise.

Investment Asset Management Exemption

The exemption provided by the new version of Article 162 of the CITT introduced an assumption that a resident or nonresident person acting in Italy as asset manager in the name of or on behalf of a nonresident investment vehicle or its subsidiaries is deemed to be independent. The character of independence is considered to exist even though the asset manager has discretionary powers that entitle them to habitually enter into contracts of purchase, sale or negotiation, or to carry out preliminary or ancillary transactions aimed at purchasing, selling, or negotiating financial instruments, including derivatives, equity or asset holdings, and loans.

The exemption applies if certain conditions are met. In particular:

  • The nonresident investment vehicle and its subsidiaries are resident or located in a state or territory included in the list referred to in Article 11(4)(c) of Legislative Decree No. 239 of April 1, 1996 (a white list, which provides for exchange of information).
  • The nonresident investment vehicle meets independence requirements that will be established with a specific law decree, to be approved.
  • The asset manager doesn’t hold any position in the administrative and controlling bodies of the investment vehicle and its direct or indirect subsidiaries, and doesn’t hold a participation in the profits of the nonresident investment vehicle of more than 25%. Participation in profits of entities belonging to the same group as that entity also will be considered.
  • The asset manager receives arm’s length remuneration for the activity carried out in Italy according to transfer pricing rules, supported by appropriate documentation.
  • The provisions for the implementation of the exemption should be fixed by a decree of the Minister of Economy and Finance.

To offer further protection to the asset manager operating in Italy, it also has been clarified that a fixed place of business at the disposal of the asset management company that carries out its business there, using its own personnel, isn’t considered to be at the disposal of the nonresident investment vehicle merely because the activity of the resident enterprise brings a benefit to the investment vehicle company.

Scope of the Exemption

The purpose of the new provision, as stated in the 2023 budget law, is to prevent an investment vehicle from being challenged as having a permanent establishment in Italy when the asset managers (and their employees) are situated there.

The investment management exemption rule is also relevant to the Italian regulations intended to attract individuals resident abroad to transfer their residence to Italy, offering significant tax benefits—the “impatriati regime” provided by the CITT.

While in theory the provision should offer insurance to foreign investment vehicles operating in the financial industry that no challenge could be made by the Italian tax authorities if their asset managers are located in Italy, it also imposes strict conditions to confirm their independence. Some of these requirements are already known, while others need be set by a ministerial finance decree that hasn’t as yet been issued.

As a result, the investment asset management exemption may still create uncertainty for taxpayers if the requirements set out to ensure the independence of the asset manager are burdensome and may require restructuring of the company’s operations to satisfy the Italian tax authorities.

Relationship of Domestic and International Provisions

The new provision imposes several requirements for the presence of a permanent establishment to be excluded. This raises the question of the relationship between tax treaty and domestic provisions. According to Italian legislation, domestic rules prevail when they are more beneficial for the taxpayer; otherwise, the tax treaty will apply.

With regard to the investment asset management exemption, when the conditions that the domestic legislation imposes (or may impose) to consider the investment vehicle as independent from the asset manager aren’t entirely met, it would be still possible to invoke the application of the tax treaty provision that might be more favorable for the taxpayers.

Understanding whether the new provision could be considered “innovative” or “interpretative” is another crucial question. In principle, in the absence of specific indications (as in the present case), the rule should have an “innovative” scope, which means that taxpayers should take the necessary precautions to reduce the possibility of permanent establishment in the future, taking into account the requirements that will be specified in the implementation decree. The concern, though, may be that structures established in the past, and that don’t comply with the new Article 162 requirements, can be subject to audit to verify whether a permanent establishment could be deemed to exist.

Remuneration of Asset Manager

The remuneration of the asset manager, according to the law, should be at arm’s length and supported by appropriate transfer pricing documentation. The explanatory report to the budget law indicates that the scope of the requirement is to ensure that “the manager’s activities are accurately determined by reference to the remuneration agreed upon between independent parties.”

However, two aspects aren’t completely clear. The first is whether the arm’s length remuneration and the transfer pricing documentation should be requested only if transactions are concluded among companies belonging to the same group, or even if the asset manager located in Italy is a third party.

The second issue refers to the difficulty in identifying comparable companies to establish the actual arm’s length remuneration, as the asset management industry is fragmented, and the fees agreed for the activity performed aren’t always harmonized.


While the purpose of the new provision is to offer more certainty to the financial industry, it will be important to manage the tax risk and ensure that the required conditions for independence are correctly implemented.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Giuliana Polacco is senior counsel with Studio Legale Bird & Bird Italy.

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