Italian companies operating in the US market have to deal with two distinct levels of taxation: the federal level, which is based on the federal corporate income tax and is uniformly regulated by federal tax law, and the state level, which is based on the state corporate income tax and is regulated by the state law of each of the fifty individual US states. The federal tax falls within the scope of application of the double taxation convention between Italy and the United States, while the state taxes are outside of it and are applied quite independently and on the basis of different and autonomous criteria, both with regard to the territorial criterion for the application of the tax, and with regard to the calculation of the taxable base and the extent of the levy. It follows that, in various circumstances, the company could be subject to state tax, and exempt or taxed at a reduced rate at the federal level. Italian companies that export to the US without a fixed base or physical presence are subject to state tax on the basis of economic nexus (economic nexus) and sales volume (formulary apportionment).
Italian companies established in the US, through branches or subsidiaries incorporated there, are also taxed in states where they are not incorporated but are physically present (including through distributors or independent agents) or generate significant sales volumes above a certain limit (generally, $100,000), on a taxable amount determined on the basis of the proportion of sales in the state to total sales. In some states, such as California, the state’s corporate profits tax system applies on a global and group basis, and a specific election must be exercised with the first tax return to disregard total group sales and profits attributable to the subsidiary and other foreign affiliates. At the federal level, transactions with the subsidiary or other group affiliates are subject to withholding tax and transfer pricing regulations. With regard, in particular, to Italian companies with subsidiaries in the US and other foreign countries, controlling interests in foreign subsidiaries are imputed to the US subsidiaries and the foreign subsidiaries are reclassified as controlled foreign companies for US tax purposes. As a result, ultimate group shareholders who relocate or reside in the US are subject to the foreign profits tax regime introduced in 2018 and known as GILTI, and the related tax reporting and compliance requirements by filing Form 5471 and its accompanying forms.
In this area, we provide specialised advice in order to correctly manage the tax exposure in the US of Italian companies with sales, activities or projects but without a permanent presence in the US, and, for companies incorporated and permanently present in the US, the planning and setting up of intercompany relationships and transactions, management of the US subsidiary’s state taxation, regulation of intercompany transfer pricing, calculation and application of withholding taxes, and planning and management of shareholders’ taxation.
We provide specialised tax advice to Italian companies selling and exporting products or services to the US, and Italian companies established and present in the US, for the proper management of their tax obligations at both the federal and state levels, and qualified assistance to Italian partners resident in the US who find themselves exposed to the regime of transparency taxation of the profits of foreign subsidiaries, and related reporting requirements.