Last December 17, the Italian Parliament adopted a new Law N.
221 in order to stimulate economic growth in the country. Among
these new measures a new provision, established in Article 38, has
been introduced regarding the aviation sector.
The purpose of this Article is to level the playing field for
Italian airlines and non-national airlines operating in Italy.
Article 38 is designed to have a significant impact on low cost
carriers, most notably Ryanair, which has not paid the same taxes
as Italian carriers, in particular payroll tax. This is not the
first time low cost airlines have come under scrutiny, for example,
Ryanair's tax affairs were investigated by the French
authorities a few years ago.
The Italian tax authorities have always considered the Irish low
cost airline to have a permanent business activity in
Italy, which obliges a non-Italian company to pay taxes in Italy.
In contrast, Ryanair has always argued that it doesn't have any
legal 'connection' to Italy.
To legally strengthen the position of the Italian tax
authorities, the Italian Parliament introduced Article 38, which
establishes that: In the context of aviation law, the term
'base', shall refer to a set of individual locations and
infrastructures used permanently, repeatedly and continuously for
air transport services by a business activity, using employees that
conduct their professional activities in the aforementioned set of
locations and infrastructures, in the sense that they work, supply
services and return to their homes after their professional
activities have finished.
An air carrier, with a license granted by a member state of
the European Union other than Italy, is considered to be
established in Italian territory when it carries out an air
transport business permanently or continuously or repeatedly, using
a 'base' as defined above.
Article 38 represents a detailed clarification which allows the
application of a fundamental principle of tax law in Italy
regarding the aviation sector: namely, the principle of
permanent establishment for all non- Italian companies
operating in Italy as defined by national law.
Not so many years ago, after a period of uncertainty regarding
the exact legal definition of permanent establishment, the
term was clarifiedin accordance with the OECD Model Income Tax
Article 162 of Italian Legislative Decree 12 December 2003, N.
344, defines the term 'permanent establishment' as
a fixed business premises through which a non-resident company
exercises either totally or partially its business in Italian
The precise definition adopted by the Italian legislator
introduces not only criteria but also limits so as to allow the
Italian government to exercise its authority to collect taxes from
non-residential parties which produce income in the Italian
Italian tax law identifies the requisites for declaring that a
foreign company has a permanent establishment in Italy.
These are as follows:
a) the existence in the State of activities subject to law that
involve physical facilities (premises) and employees;
b) the permanence of such facilities, which must be used in a
ongoing and not occasional manner;
c) a connection between the facilities and the normal business
activities of the company;
d) their productive capacity, meaning their own ability to
produce earnings, independently of the activities performed by
company outside Italian territory.
Article 38 of Law N. 221/2012 endorses the Italian tax law
principles mentioned above and, in addition, clarifies and expands
not only tax requirements but also social security and labour law
obligations in the aviation sector in keeping with the principles
established in the preamble to European Regulation on common
rules for the operation of air services in the Community N.
1008/2008: With respect to employees of a Community air carrier
operating air services from an operational base outside the
territory of the Member State where that Community air carrier has
its principal place of business, Member States should ensure the
proper application of Community and national social
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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