The creation of a Permanent Establishment Abroad

This work examines the legal and tax implications of creating a Permanent Establishment (PE) abroad, a central concept in international taxation that defines when and how a foreign enterprise becomes subject to tax in a host country. By analyzing its historical development, current international frameworks, and practical applications, the study provides both theoretical insights and practical guidance for multinational enterprises. The research begins by addressing the evolution of the PE concept, from its origins. It highlights the role of the OECD Model Tax Convention, especially Article 5, as the main base for defining PEs, while acknowledging that interpretations vary across jurisdictions. Special focus is given to the transformations triggered by globalization, digitalization, and anti-avoidance measures such as the Base Erosion and Profit Shifting (BEPS) Project and the OECD/G20 Two-Pillar Approach. These initiatives illustrate both progress toward fairer taxation and the difficulties of sustaining multilateral consensus. The thesis then examines the two primary modes of establishing a foreign presence: branches and autonomous subsidiaries. Their legal, accounting, and fiscal differences are analyzed, showing how each structure entails distinct advantages, risks, and tax consequences. This comparison also considers the growing importance of anti-avoidance frameworks, which limit the ability of MNEs to exploit formal distinctions to minimize taxation. Then, a comparative legal analysis of Italy and France follows, focusing on their national approaches to PE regulation. In Italy, the TUIR sets detailed rules on the definition and taxation of PEs, while in France, the concept is linked to the Code Général des Impôts and reinforced by the General Anti-Abuse Rule. Both countries apply OECD principles but show divergences, particularly in relation to the digital economy: France has introduced a Digital Services Tax, while Italy emphasizes EU-level coordination. To connect theory with practice, the elaborate presents a case study of San Marco Group S.p.A., an Italian company in the paint and coatings sector that expanded into France. The analysis investigates whether San Marco France, though formally an autonomous subsidiary, could under certain conditions be treated as a permanent establishment. It evaluates tax risks, compliance obligations, and profit allocation issues, while also highlighting strategies the company employs to reduce PE exposure and optimize tax efficiency. The methodology integrates legal research, comparative analysis, and applied case study methods, combining academic literature, international treaties, European directives, and practical insights from San Marco Group’s internal assessments. This approach ensures that the study not only clarifies theoretical debates but also delivers actionable guidance for businesses. The findings confirm that the PE concept is evolving beyond the traditional requirement of physical presence, reflecting the challenges of digital business models. They also show that while Italy and France converge on OECD standards, important national distinctions remain. Finally, the San Marco France case demonstrates that even subsidiaries with formal independence may raise PE concerns if their operations reveal strong dependence on the parent company.