Finding the meaning of nexus for taxes - past, present and future: Italian Branch Report

Italy imposes a variety of taxes, each serving specific purposes. The tax landscape includes income tax, regional tax, VAT, registration tax, inheritance and gift taxes, and digital service tax. The income tax system follows a schedular approach with six categories of income. The nexus rules for individuals and legal entities rely on personality-based and territoriality-based criteria. As for personality-based criteria, reference is to the residence, whose relevant rules have been amended as from 2024.Territoriality-based criteria vary across income categories, encompassing factors like the locus rei sitae, the payor’s residence, and the location of the activity generating the income. Regional tax adheres to a territoriality principle, applicable to activities carried out in the Italian territory by both resident and non-resident taxpayers. VAT rules are generally aligned to EU VAT Directive no. 2006/112/EU and the role of a fixed establishment in service supplies plays a crucial role in determining territoriality and VAT liability. Registration tax applies based on the place where the deed is stipulated. Deeds stipulated abroad are subject to registration in a limited number of cases. Inheritance and gift taxes follow nexus rules similar to income tax, but concerns arise regarding their compliance with international law principles. The attribution of relevance to transfers occurring abroad, on the sole basis of foreign law and irrespective of a genuine link with the Italian territory raises questions about the legislator’s taxing power. Digital service tax is determined by the location of the user, identified through the Internet Protocol (IP) address or other geolocation methods. The rules reflect the legislator’s aim to tax value creation resulting from users’ activity. Despite the principles of residence and source are well-established and widely accepted at the international level, questions about their applicability in the modern digital economy have emerged. So far the Italian legislator has made limited adjustments, including provisions on disguised permanent establishments and the introduction of the digital service tax. Significant changes, however, may only come through international initiatives like the OECD Pillar 1 project, whose level of acceptance and implementation by the States should be evaluated in the coming years.