The first case in point by which the existence of a concealed permanent establishment of a foreign company operating in the digital economy is hypothesized emerges in Italy.

The notion of permanent establishment is one of the oldest in international tax law. It stands alongside the “golden rule” on the taxation of business income, according to which it is taxable only in the state of residence of the business itself, safeguarding the rights of the state of source.

To date, the permanent establishment has been characterized by its purely material or personal profile. The definition still in force today, both internationally and domestically, values the presence in the state other than the state of residence of a permanent establishment of the enterprise, through which it exercises all or part of its activity.

The arrangement based on the interaction between Articles 5 and 7 of the OECD Model has come into crisis with the advent of the digital economy, which is characterized by the dematerialization of both goods and services rendered. Despite the growing international interest, neither the OECD nor the European Union has so far arrived at an agreed reconstruction. As for the OECD, the BEPS project has devoted a specific action to the tax challenges of the digital economy. However, participating states have failed to agree on a new form of “nexus” for identifying a permanent establishment in the case of dematerialized presence in a given jurisdiction

As can be inferred from the brief outline so far, the goal of building an appropriate system for taxing the digital economy is far from being achieved or, more simply, outlined. The uncertainty that hovers is obviously due as much to political as to technical factors.

Against this backdrop of global uncertainty, the Tax authority, and the Guardia di Finanza, have concluded the tax dispute with the multinational group Netflix, bringing 56 million euros into the treasury coffers. This represents the first case, worldwide, in which the existence of a concealed permanent establishment of a foreign company operating in the digital economy, completely unstaffed and characterized exclusively by an advanced technological structure, is alleged. This structure, writes the Milan Prosecutor’s Office, «would have been subservient exclusively to the performance of key corporate functions for the conduct of its business on the territory of the State. »

Considering the stakes and difficulties involved, there is a need for taxpayers and businesses for greater clarity and certainty from the regulatory perspective.