GamingInternet liability

New Italian tax permanent establishment – What changes for eCommerce and gaming sites?

A change in tax permanent establishment criteria provided by the Italian Budget Law might have a considerable impact on the eCommerce and gaming industries. 

A number of tax related regulatory changes have been introduced by means of the Italian budget law and below is a focus specific on the new concept of tax permanent establishment.

Both web tax and new tax permanent establishment criteria

I already covered the new Italian web tax or digital tax, but the Italian Budget Law also introduced a broader definition of tax permanent establishment.

In particular, the Parliament is trying to hit a very common practice in the eCommerce and online gaming industry where there in an Italian company which provides marketing services to the foreign affiliate entity running the eCommerce or gaming/gambling platform. The goal of the foreign entity is to avoid the payment of Italian corporation taxes, while the purpose of Italian tax authorities is to prove that the Italian entity runs a substantial part of the Italian business of the foreign entity and therefore the latter shall pay also Italian corporation taxes.

The law provides now that

if an Italian entity either acts on behalf of a foreign entity or usually enters into contracts or performs activities that are functional to the entrance into contracts without substantial changes by the foreign entity and such contracts are under the name of the foreign entity [—], it is deemed that the foreign entity has a permanent establishment in Italy in relation to all the activities performed by such entity“.

The consequence of the above is that the foreign entity will be obliged to pay Italian corporation taxes in full or in part with reference to its Italian business, even if run from abroad.

What to do now?

The law has now been approved and shows a position of the Italian tax authority already consolidated. eCommerce and gaming operators/suppliers having an Italian entity involved in marketing or other ancillary services shall carefully review the role of the Italian entity, also running a transfer pricing analysis at least every 3 years that has to be submitted to tax authorities in case of investigation.

I will be happy to discuss the above issue, also involving my tax colleagues. In the meantime, if you found this article interesting, please share it on your favourite social media!


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Giulio Coraggio

I am the head of the Italian Technology sector and the global head of the IoT and Gaming and Gambling groups at the world-leading law firm DLA Piper. IoT and artificial intelligence influencer and FinTech and blockchain expert, finding solutions to what's next for our clients' success.

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