Italian tax authorities challenge the adequacy of the Italian permanent establishments of foreign banks free capital

In recent time, Italian tax authorities are becoming more aggressive in challenging the deductibility of interest expenses at the level of Italian permanent establishments (PE) of foreign banks.

In principle, Italian permanent establishments of foreign banks are allowed to deduct the amount of passive interest paid on the loans granted by the headquarter. However, Italian tax authorities stated that the amount of the free capital assigned to the PE should be ‘appropriate’ under the arm’s-length principle…

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