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Recent developments in respect of the Italian investment management exemption regime

Does an Italian investment manager create a permanent establishment for a foreign investment vehicle? Not necessarily – especially now that the investment management exemption (IME) has been implemented. The IME is an important safe harbour for the investment industry, and this post considers its scope, associated conditions and next steps for foreign investors engaging Italian investment managers. 

The IME regime was introduced in Italy by Law No. 197 of 29 December 2022. It excludes eligible asset/investment managers and advisors operating in Italy from being considered a permanent establishment (PE) of the foreign investment vehicle(s) they work for. The IME was recently implemented by Decree of the Italian Ministry of Economy and Finance of 22 February 2024 (the Decree).  

Several conditions have to be met in order to benefit of the IME, including in respect of the appropriate remuneration of the local structure based on the arm’s length principle. This latter condition was clarified by the Italian tax authority in Provision 68665/2024 of 28 February 2024 (the Provision).


Where the IME applies, an asset/investment manager or advisor who operates in Italy (whether they are Italian tax resident or a non-resident operating through a PE) in the name and on behalf of a foreign investment vehicle or of its controlled entities and who habitually concludes – or contributes, including through preliminary or ancillary operations, to the conclusion of – contracts for the purchase, sale or trading of financial instruments (including derivatives, equity participations and credits) will be deemed to be independent from the non-resident investment vehicle (and thus not trigger a dependent agent PE in Italy), even if the manager exercises discretionary powers.

But each of the following conditions must be fulfilled for the IME to apply:

  1. The foreign investment vehicle and its controlled entities must be established in a white-listed country (i.e., countries that allow an adequate exchange of information with Italy).
  2. The foreign investment vehicle must comply with certain independence conditions. The Decree makes clear that this requirement focuses on the characteristics of the investment vehicle itself (plurality of investors and being subject to supervision) rather than on the subject of its investments.
  3. The asset/investment manager or advisor must meet certain independence requirements. This has two elements. The first is that the manager must not have positions in management or supervisory bodies at the foreign investment vehicle (or at any of its direct or indirect subsidiaries), including through general operational proxies provided by the Board of Directors. The second element is that the manger must not (as determined on a cumulative basis with other companies in the same group) be entitled to more than 25% of the foreign investment vehicle’s total economic results (including a pro rata share of returns from investments in the foreign investment vehicle and components of returns that exceed a pro rata share of return).
  4. The remuneration of the asset/investment manager or advisor for services provided to related entities must be at arm’s length and supported by proper transfer pricing documentation.

Arm’s length remuneration of the asset/investment manager or advisor

The Provision sets out specific rules for determining the proper remuneration of the asset/investment manager or advisor. This should generally be done by reference to the methods recognised by the OECD Transfer Pricing Guidelines. 

But the Provision includes more detailed guidance in relation to two types of services. 

The first type is investment management services, including the purchase, sale or trading of financial instruments based on a pre-determined investment policy, the administration of assets (e.g., legal and accounting services related to the assets’ management, and analysis of compliance with relevant regulations), and the promotion, in the form of offers addressed to investors aimed at the subscription or purchase of units or shares of assets. The Provision states that it would be preferable to apply the CUP method (following the ordinary hierarchy of transfer pricing methods). But if the CUP method is not applicable, the profit split method should be deemed the most appropriate method given that both parties assume significant risks (this appears to be aligned with what is stated in the OECD Guidelines at paras. 2.130, 2.133 and 2.134 and Example 6 in Annex II to Chapter II). The other methods (resale, cost plus and transactional net margin) should be selected only if the CUP and the profit split methods cannot be applied reliably (however, a PLI calculated based on costs must not be applied).

The second type is services related and instrumental to investment management services, such as consultancy services for investments and auxiliary services to investment management (e.g., administrative services and market analysis). On the assumption that they do not entail both parties assuming significant risks, any of the transfer pricing methods may be applied (and should be selected based on the relevant parts of the OECD Guidelines).


The IME introduces an important safe harbour for the private equity industry (although, even if an arrangement fails to meet the conditions for the IME, all may not be lost because, even in such a scenario, the activities of asset/investment managers and advisors may not trigger a PE in Italy on first principles, but further analysis would be required). 

From a transfer pricing perspective, the Provision sets out important guidelines which can be summarised as follows. If the activities of the asset/investment manager or advisor significantly contribute to value creation, a portion of the value created should be attributed to the Italian structure (via application of the profit split method). If the local activities are simply routine and/or administrative services, a remuneration based on local costs is acceptable. These principles could have significant practical implications for services currently characterised as high value-added (which in practice are generally remunerated with a 10% markup), as they could ultimately be re-characterised by the Italian tax authority as services to be remunerated with a profit split.

Of course, a mandatory condition for asset/investment managers and advisors to be eligible for the IME is that they draft transfer pricing documentation according to Italian standards (which are consistent with Chapter V of the OECD Guidelines) and flag possession of the documentation in their tax returns. It would therefore be advisable to do the following.

  • Verify whether the Italian asset/investment managers and advisors are eligible for the IME.
  • Ensure transfer pricing policies are updated in accordance with the guidelines set out in the Provision. 
  • Prepare and keep proper transfer pricing documentation for the services provided by the asset/investment managers or advisors.


bonellierede, italian tax, permanent establishment, investment funds