Italian 2026 Finance Bill – Key Tax Measures: Support for Middle and Low Incomes | Revision of IRPEF tax brackets | Baby bonus | Enhanced parental leave and nursery bonus | Social security exemption for working mothers | Increased deductions for private school expenses | Family endowment fund | First home mortgage guarantee fund | Support for food purchases | Energy-efficient appliance bonus | Cap on deductions for incomes over €75,000 | Exceptions for healthcare, mortgages, and startup investments | End of deductions for children over 30 (except disabled children) | “Hire more, pay less” tax deduction for new permanent hires | Reduced tax on productivity bonuses | Fringe benefit exemptions | Relocation support for new hires | Raised flat tax threshold for employees and pensioners | Reduced corporate tax (IRES) for reinvested profits | Tax credits for southern Italy investments | Enhanced “Nuova Sabatini” machinery financing | Support for SME stock market listings | Increased public investment in defense, infrastructure, and healthcare | Banking and Insurance | Deferred deductions for financial sector losses | Annual stamp duty on life insurance contracts

Extended definition of Permanent Establishment

Italy’s 2018 Finance Act made some significant changes to the definition in the domestic Tax Code of Permanent Establishment (PE).

Specifically the changes:

  • extend the definition of agency PE;
  • make ALL the listed activities (deriving from the OECD standard model) which are deemed not to give rise to a PE conditional on the activities being preparatory or auxiliary in nature. This is a significant departure from the OECD model which allows foreign companies to maintain stocks of goods in Italy at any stage of the business process;
  • include an ‘anti-fragmentation rule”.

A translation of the revised art. 162 of the Code is shown below.

Often the definition in an applicable double treaty will override the domestic provisions.  But in the past the Italian courts have been willing to deny the application of a more favourable treaty provision in cases of perceived tax avoidance or treaty shopping.

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