On 7 March 2008, the Italian tax authorities issued Ruling No. 83 regarding the domestic tax credit available on foreign taxes paid by a foreign permanent establishment.
(a) Facts. An Italian company is involved in the construction and enlargement of a pipeline in Tunisia and in the transportation of gas to Tunisia through a pipeline representing a fixed establishment in Tunisia. It follows that the Italian company carries on its activity in Tunisia through a permanent establishment. The Italian company entered into an agreement with the Tunisian authorities pursuant to which any taxable income derived in Tunisia by the Italian company, is subject to a substitute tax (Prélèvement fiscal global forfaitaire) in Tunisia. Such tax substitutes any direct and indirect tax, including the Impôt sur les sociétés, that should have been paid by the PE in Tunisia. As requested by the Italian company, at the end of each tax year, the Tunisian tax authorities issues a certificate attesting the payment as final of the Impôt sur les sociétés and providing details on the computation of the taxable base.
(b) Issues. Whether a domestic tax credit is available on the portion of Prélèvement fiscal global forfaitaire related to the Impôt sur les sociétés.
(c) Tax authorities' opinion. First the tax authorities stated that the domestic tax credit provided by Art. 165 of the Italian Income Tax Code (ITC), is available only if the foreign tax paid (i) is final, and (ii) is "similar" to the corporate tax. The latter requirement is met when the foreign tax has the nature of corporate income tax, regardless the manner in which it is computed or levied.
Furthermore, the tax authorities underlined that a foreign tax qualifies for the purpose of Art. 165 of the ITC, if it falls within the scope of Art. 2 of the Italy-Tunesia tax treaty. Specifically, pursuant to such Art. 2, treaty provisions apply to "all taxes imposed on total income, or on elements of income, including taxes on gains from the alienation of movable or immovable property, taxes on the total amounts of wages or salaries paid by enterprises, as well as taxes on capital appreciation irrespective of the manner in which they are levied" as well as "to any future taxes of an identical or substantially similar nature which are imposed after the date of signature of [the treaty] in addition to, or in place of, the taxes mentioned in paragraph 3".
The Impôt sur les sociétés was implemented in 1990 in Tunisia to replace the Impôt sur les bénéfices des sociétés which, in turn, was introduced to replace (i) the licence tax (l'impôt de la patente), (ii) the tax on profits from non-commercial professions (l'impôt sur les bénéfices des professions non commerciales), and (iii) the tax on wages and salaries (l'impôt sur les traitements et salaires), which are included in Art. 2(3)(b) of the treaty.
In addition, the tax authorities noted that the Impôt sur les sociétés is due on income derived by a business establishment in Tunisia and on any other income taxable therein, pursuant to the relevant tax treaty. It follows that the similarity principle is met.
However, in the case at issue, the Impôt sur les sociétés is not autonomously levied and paid. Indeed a substitute tax (Prélèvement fiscal global forfaitaire), which substitutes also the Impôt sur les sociétés, is due. As such, the similarity requirement is met only with regard to the portion of Prélèvement fiscal global forfaitaire related to the Impôt sur les sociétés.
Furthermore, as the payment of the Prélèvement fiscal global forfaitaire is regarded as final pursuant to the certificate issued by the Tunisian tax authorities, the portion of it related to Impôt sur les sociétés is also regarded as final.
Based on the above, the tax authorities concluded that the domestic tax credit is available on the portion of the Prélèvement fiscal global forfaitaire related to the Impôt sur les sociétés.