Downsizing an Italian Subsidiary: the Hidden Tax and Execution Risks of Cross-Border Wind-Downs

• Andrea Lovisatti

Forewords

Closing or significantly downsizing an Italian subsidiary is rarely a straightforward legal liquidation. In practice, it becomes a multi-layered restructuring exercise involving transfer pricing, employment law, permanent establishment exposure, VAT risks, director liability, stakeholder management, and operational execution — all moving simultaneously and often under severe time pressure.

For multinational groups, the core challenge is not simply how to close the Italian entity.

The real challenge is how to:

This is where many foreign groups underestimate the Italian environment.

A formally completed liquidation does not automatically eliminate:

In many cases, the highest-risk phase begins after operations have already been discontinued.

For this reason, Italian wind-downs should not be approached as isolated legal procedures. They must be managed as integrated restructuring projects combining:

From a transfer pricing perspective, OECD Chapter IX governs the entire restructuring lifecycle — not only the final documentation phase. The Italian tax authorities increasingly analyse:

At the same time, Italian labour and insolvency rules create operational constraints that often determine the actual timing of the transaction more than the tax design itself.

The sequencing of decisions therefore becomes critical.

Most failed Italian wind-downs are not caused by aggressive tax positions.

They are caused by execution errors:

For multinational CFOs, General Counsel, and international tax directors, the priority is therefore not merely legal compliance.

It is maintaining strategic control over a high-risk transition environment.

This article provides a practical framework for managing Italian wind-downs from both a tax and operational perspective, combining:

Executive Summary - Key Risks at a Glance

This paper provides an integrated analysis of all four dimensions.

1. When Tax Efficiency Requires Exit: The Italian Challenge

A tax-driven business conversion is a deliberate reorganisation of a company's legal, operational, or financial structure aimed at optimising tax efficiency while preserving commercial performance. These restructurings routinely involve entity classification changes, supply-chain redesign, IP migration, functional centralisation, or relocation of governance structures.

Italy represents one of the most operationally demanding wind-down environments in the EU. What begins as a tax-planning decision escalates into a high-stakes operational, legal, and reputational exercise. For foreign CFOs managing from headquarters, five dimensions converge to create compounded risk.

1.1 Labour Law: Procedural Intensity

Italy's employment framework is characterised by structured procedural requirements and substantive worker protections. Any closure affecting five or more employees triggers the collective dismissal regime under Law 223/1991: formal union notification, consultation periods of at least 25 days (extendable to 30), and potential activation of social cushioning measures (CIG, mobility allowances). In practice, the full timeline runs 90-120 days where unions are organised. Procedural failures in collective processes generate independent damages exposure regardless of the substantive grounds for closure.

1.2 Director Liability: A Stratified Framework

Italian directors face exposure across multiple layers - civil, insolvency, tax, and criminal - which must be carefully distinguished:

Risk mitigation requires different responses for each layer: governance discipline for civil exposure; proper sequencing of liquidation distributions for tax liability; clean-hands conduct and transparent documentation for the criminal threshold.

1.3 Transfer Pricing Exposure at Every Conversion Step

The OECD Chapter IX framework requires that every step in a business restructuring comply with the arm's length principle. The Agenzia delle Entrate audits whether the Italian entity received arm's length compensation for the conversion; the pricing of final asset transfers, service unwinds, and loan waivers; exit taxation where functions, risks, or assets are effectively transferred outside Italy; and post-restructuring pricing against the entity's pre-restructuring profile.

1.4 Post-Closure PE and Tax Nexus Risk

Closing a subsidiary does not necessarily eliminate Italian taxable presence. Residual commercial activity, retained consultants with contracting authority, warehousing, or remote management coordination from Italy can independently create a permanent establishment of the foreign parent under Art. 162 TUIR. This risk is addressed in Section 5.

1.5 Art. 2112 and Stakeholder Risk

Where functions migrate to another group entity, Art. 2112 of the Civil Code may automatically transfer employment contracts and liabilities - without any written agreement - to the successor entity. Italian wind-downs in strategically significant sectors also attract political and union attention that materially affects cost, timeline, and outcome. These dimensions are addressed in Sections 6 and 10.

2. Scale and Complexity of Modern Tax Conversions

Tax-driven conversions have become a defining feature of global corporate strategy. Academic research (Garcia-Bernardo & Jansky, 2024) estimates that profit shifted globally in 2017 exceeded USD 850 billion, primarily into jurisdictions with effective rates below 10%. The same forces driving tax efficiency - supply chain consolidation, functional centralisation, digital service models - produce structural redundancy. When the redundant entity is Italian, the exit path is rarely straightforward.

Conversion success depends on: strong internal controls and audit-ready documentation; verifiable commercial rationale documented contemporaneously; Chapter IX-compliant transfer pricing policies; and disciplined project management across legal, HR, finance, and tax functions.

3. The OECD Chapter IX Framework

Chapter IX of the OECD Transfer Pricing Guidelines - the authoritative international framework for business restructurings, originally published in 2010 and substantially updated post-BEPS in the January 2022 edition - requires that transfer pricing analysis inform the restructuring design, not merely document it after the fact.

The Italian doctrinal analysis by Giacomo Albano and Fabio Zampini, published in Il transfer pricing nell'ordinamento tributario italiano (Della Valle, Maisto, Miele, eds., Giappichelli, Torino, 2024), confirms that Italian practitioners apply Chapter IX in full - making it the operative standard for any group with Italian exposure.

3.1 What Counts as a Business Restructuring

Chapter IX's definition is deliberately broad: any cross-border reorganisation of commercial or financial relations between associated enterprises, including termination or substantial renegotiation of existing arrangements. For Italian subsidiaries, this encompasses: conversion of a full-risk distributor to a limited-risk distributor or commissionaire; conversion of a full-fledged manufacturer to contract or toll manufacturer; IP transfer to a principal entity; centralisation of procurement, treasury, or R&D; and termination or renegotiation of distribution or manufacturing agreements.

3.2 The Two-Part Framework

Part I - Compensation for the restructuring itself: should the Italian entity receive (or pay) compensation? The analysis covers accurate delineation of what changed; commercial rationale; options realistically available (ORA) to the Italian entity; and whether assets or rights of value were transferred and at what arm's length price.

Part II - Post-restructuring intercompany pricing: the newly-converted entity's remuneration must reflect its new, reduced functional profile. This cannot be determined without understanding what it gave up in the restructuring.

3.3 Functional Profiles

Manufacturing (most to least complex): Full-fledged manufacturer > Contract manufacturer > Toll manufacturer > Assembler
Distribution (most to least complex): Full-fledged distributor > Limited-risk distributor > Commissionaire > Agent
Every step down either spectrum that strips the Italian entity of functions, risks, or assets is a potential taxable event under Chapter IX - unless independent parties in comparable circumstances would not have required compensation.

3.4 Key Compensation Triggers

(a) Transfer of value: local intangibles (customer lists, marketing know-how, local brand equity) and contractual rights must be valued and compensated at arm's length. For hard-to-value intangibles (HTVI), Chapter VI applies.

(b) Contract termination indemnity: where the Italian entity held a long-term agreement that is terminated, Chapter IX requires analysis of whether an independent party would have negotiated an indemnity - based on remaining term, investments made, and comparables.

(c) Profit-potential shift: conversion of a full-risk to a limited-risk entity reduces expected future profits. Compensation is due only when accompanied by an asset or rights transfer, or where contract termination would independently have required an indemnity.

3.5 The ORA Test

The ORA (options realistically available) analysis asks: would an independent party in the Italian entity's position have accepted this restructuring on the terms offered? The analysis must be conducted at the level of the Italian entity - not at group level. Commercial sense for the group does not satisfy the Chapter IX standard. The ORA analysis must be documented contemporaneously: it cannot be reconstructed retrospectively.

3.6 Post-Restructuring Transfer Pricing

Post-restructuring intercompany pricing must reflect the entity's new, reduced functional profile. The Agenzia uses pre- and post-restructuring profit comparisons as a standard audit tool. A former full-fledged distributor that received no indemnity will face the argument that the post-restructuring price implicitly compensated for surrendered intangibles.

Case Study A - Distributor-to-Commissionaire Conversion
A German group converts its Italian full-fledged distributor (holding local customer relationships, inventory risk, and pricing autonomy developed over 15 years) into a commissionaire acting for the German principal. No formal asset transfer occurs. Chapter IX analysis: the Italian entity held valuable marketing intangibles. The ORA analysis asks whether an independent distributor in the same position would have accepted conversion without compensation. Almost certainly not. A termination indemnity - quantified by reference to remaining contract term and lost profit potential - is required. Failure to document and execute this indemnity creates material Chapter IX exposure, routinely identified through post-restructuring profitability comparisons.

4. Exit Taxation: Scope, Triggers, and Limits

Arts. 166 and 166-bis TUIR impose Italian exit tax on unrealised gains when economic ownership of assets, functions, or risks is effectively transferred outside Italy. Exit taxation requires precision: not every functional downgrade triggers exit tax.

Exit tax applies where there is an effective transfer of: functions or activities with genuine economic substance, including DEMPE activities; assets including intangibles, going concern value, or contractual rights with economic value; risks where transfer is accompanied by realistic economic substance and capital allocation; or business relocation and migration of economic ownership.

A functional downgrade does not automatically trigger exit taxation if no asset, risk, or business is transferred outside Italy. However, where conversion involves migration of intangibles, customer relationships, or economic substance to a foreign entity, exit taxation analysis under Arts. 166/166-bis TUIR is mandatory before any transaction is executed.

Exit taxation and Chapter IX transfer pricing analyses are complementary, not alternative. A transaction that triggers Chapter IX compensation also typically creates an exit tax event. Both must be conducted and documented simultaneously.

Practical caution: the Agenzia delle Entrate does not require a formal legal transfer to assert exit taxation. Where economic substance - functions, customers, intangibles - demonstrably migrates from the Italian entity to a foreign entity, even absent a written agreement, an exit tax challenge is possible. Documenting what did NOT transfer, and why, is as important as documenting what did.

Case Study B - Manufacturing Shutdown with IP Migration
A Swiss group closes its Italian manufacturing subsidiary and transfers the production process - process know-how, supplier relationships, and quality certifications - to a newly established Czech entity before liquidation. Exit tax analysis: the know-how, supplier relationships, and certifications are intangibles within OECD Chapter VI. Their migration triggers both Arts. 166/166-bis TUIR (exit tax on unrealised gain) and Chapter IX (arm's length compensation). The liquidation timing does not retroactively eliminate the exit tax event. A pre-transaction valuation and arm's length transfer agreement are required before operational migration begins.

5. Post-Wind-Down Permanent Establishment Risk

One of the most frequently overlooked risks in Italian wind-down planning is the survival - or inadvertent creation - of Italian tax nexus after the subsidiary has been liquidated. Closing a legal entity terminates that entity's Italian corporate tax presence. It does not automatically eliminate Italy's right to tax the foreign parent.

5.1 The PE Framework

Under Art. 5 of the OECD Model Tax Convention and Art. 162 TUIR, a PE arises where a non-resident enterprise maintains a fixed place of business in Italy through which the business is carried on, or where a person habitually concludes contracts on behalf of the enterprise in Italy. Post-closure PE exposure most commonly arises through:

5.2 VAT Fixed Establishment

For VAT purposes, a fixed establishment is broader than the PE concept. Under the EU VAT Directive and CJEU case law (Titanium, Cabot Plastics, Dong Yang Electronics), a VAT fixed establishment can arise where the foreign entity makes use of human and technical resources in Italy on a sufficiently stable basis - even without a formal legal entity. A subsidiary providing transitional services to the foreign parent after closure may inadvertently sustain VAT fixed establishment, generating Italian VAT registration obligations for the foreign parent.

5.3 Mitigation Framework

PE and FE risk mitigation requires: a clean-break analysis identifying all residual Italian activities, personnel, and infrastructure; termination of transitional service arrangements that could create FE/PE; clear documentation of the absence of contracting authority in Italy for any retained personnel; review of Italian real property leases, server co-location, and warehouse agreements; and a PE opinion from Italian counsel before finalising the closure structure.

Key message: the liquidation certificate issued by the Italian Companies Register confirms the Italian legal entity has been dissolved. It does not constitute confirmation that Italian PE or VAT fixed establishment exposure has been eliminated. Those risks must be assessed and mitigated independently.

Case Study C - Residual Sales Activity Post-Closure
A UK group closes its Italian sales subsidiary and retains two former employees as independent contractors to maintain customer relationships during the transition. Both are Milan-based. PE analysis: if either contractor habitually plays the principal role in leading contracts with Italian customers to conclusion, a dependent agent PE of the UK parent arises in Italy under Art. 162 TUIR - even though the Italian subsidiary no longer exists. The UK parent would owe Italian corporate tax on profits attributable to that PE. Mitigation: restrict contractor mandates to purely preparatory and auxiliary activities; prohibit contract representation; obtain PE opinion before commencing transitional arrangements.

6. Art. 2112 Civil Code: The Hidden Employee Transfer Risk

One of the most consistently underestimated risks in Italian restructurings is the automatic employee transfer mechanism under Art. 2112 of the Civil Code - Italy's implementation of the EU Acquired Rights Directive (Directive 2001/23/EC).

6.1 The Trigger

Art. 2112 applies automatically - without requiring any agreement - whenever there is a transfer of a business (azienda) or business unit (ramo d'azienda) from one entity to another, including intra-group transfers. Formal legal agreements are not required: economic and functional continuity is sufficient. Triggering scenarios include: migration of an operational function to another group entity (Italian or foreign); outsourcing to an Italian contractor using the same employees; continuation of the Italian entity's commercial activities by a successor entity; and assignment of contracts, customer relationships, and associated personnel to a foreign entity.

6.2 Automatic Consequences

Where Art. 2112 applies, the transferee automatically inherits all employment contracts of employees assigned to the transferred unit (with preserved terms and conditions); all employment liabilities accrued as of the transfer date (unpaid wages, TFR, INPS/INAIL arrears); and continuity of existing collective agreements. The employee may resign with severance equivalent to dismissal where the transfer results in substantial modification of working conditions. The transferee is jointly liable with the transferor for pre-transfer employment liabilities.

6.3 Why This Risk Is Underestimated

Art. 2112 recharacterisation risk is particularly acute where: the closure is followed immediately by commencement of the same activities by a successor entity; functions are outsourced to a third-party Italian provider who hires the same employees; or the group retains the Italian customer base while eliminating the legal entity. Italian labour courts pierce formal legal structures and find a transfer of undertaking based on economic continuity. The consequence is automatic assumption of employment contracts and liabilities by the succeeding entity - potentially including the foreign parent.

Action point: any restructuring involving migration of functions, outsourcing of activities, or continuation of the Italian business through a different entity must receive an Art. 2112 analysis before operational decisions are made. This analysis cannot be deferred to the documentation phase.

7. VAT: Deregistration, Final Claims, and Residual Risk

7.1 VAT on TP Adjustments (Arcomet Line)

The CJEU held in Arcomet Towercranes (C-726/23, September 2025) that TNMM-based TP payments fell within the scope of VAT where the contractual framework established a direct link between the payment and services rendered. The Italian Revenue Agency had signalled this direction via Risposta a interpello n. 884/2021, confirmed in n. 214/2025. Risoluzione n. 78/E/2021 connects year-end TP adjustments to potential DAC6 disclosure obligations. A combined VAT and DAC6 position analysis is required before executing any final intercompany payment.

7.2 VAT Deregistration

7.3 Fixed Establishment and Ongoing Support Activities

Residual Italian activities after closure may constitute a VAT fixed establishment of the foreign parent (see Section 5.2). Each transitional service arrangement between the closing entity and the foreign parent requires a VAT analysis - both the supply side and the input tax recovery side, read together with the Arcomet and Weatherford judgments.

8. Data, Privacy, and Records Retention

8.1 Employee Data Transfers

HR records, payroll data, and employee files are personal data under GDPR and D.Lgs. 196/2003. Cross-border transfer to headquarters or a group shared service centre requires: a legal basis (SCCs, adequacy decision, or BCRs for extra-EEA transfers); a data transfer impact assessment where the destination lacks an EU adequacy decision; employee notification; and appointment of a local data protection representative during the retention period.

8.2 Retention Obligations

Italian law mandates: 10 years' retention of accounting records (Art. 2220 Civil Code); 5 years for employment claims and 10 years for social security disputes; and the full Italian tax statute of limitations for tax records. Before the Italian entity is struck off the register, a custodian must be appointed (parent company or designated EU affiliate) with appropriate data processing agreements in place.

8.3 Operational Approach

A data audit should be completed as part of Phase 1 (pre-announcement), identifying all data categories held by the Italian entity, applicable retention periods, transfer destinations, and legal bases. The audit must be integrated with HR and legal workstreams - it is not a standalone DPO exercise.

9. Regulatory Scrutiny, Burden of Proof, and Documentation

Italian tax audits of cross-border restructurings have become more coordinated and data-driven, driven by BEPS-era information exchange, CbCR data analysis, and the Agenzia's dedicated transfer pricing and international tax unit.

9.1 Burden of Proof: The Italian Court Line

Corte di Cassazione decisions nn. 15668/2022, 26695/2022, 10499/2024, 10577/2024, and 7163/2026 establish that the initial burden in Italian TP audits rests with the tax authority: it must first produce evidence of a deviation from arm's length values before the burden shifts to the taxpayer. Cassazione 36275/2022 adds that any proposed correction must be methodologically coherent.

Strategic implication: contemporaneous, methodologically rigorous Chapter IX documentation determines which party bears the heavier evidentiary burden. A fully developed local file and ORA analysis forces the Agenzia to confront a complete arm's length position. An empty file creates a vacuum that the authority will fill with its own assumptions.

9.2 Criminal Tax Exposure: Calibrated Risk

D.Lgs. 74/2000 defines when criminal tax exposure arises. For restructurings, the most relevant provision is Art. 11 (fraudulent subtraction of assets from tax collection), which requires deliberate intent and demonstrable prejudice to the tax authority. Commercially motivated restructuring decisions, properly authorised and documented, do not meet this threshold. The risk is real where assets are distributed to shareholders or transferred to related parties in a manner that demonstrably prejudices Italian tax claims.

10. Political, Union, and Reputational Risk

Italian wind-downs are not exclusively legal and tax events. In cases involving larger employers, strategically significant sectors, or multinationals with a visible Italian market presence, closures attract political and media attention that materially affects cost, timeline, and outcome.

10.1 Institutional Actors

Large-scale closures in manufacturing, automotive, energy, logistics, pharmaceutical distribution, and food sectors frequently trigger engagement from: MISE (Ministero delle Imprese e del Made in Italy) and MLPS (Ministero del Lavoro), both of which have formal roles in large collective dismissal processes; regional governments and administrations in high-employment concentration areas; CGIL, CISL, and UIL confederations and sector-specific structures; and national and local media.

10.2 Stakeholder Management as Strategy

A closure communicated poorly or perceived as aggressive will attract: extended union consultation periods and procedural challenges delaying timelines by months; Ministry intervention requiring presentation of industrial plans or alternatives; and media coverage affecting the group's broader Italian market reputation. Stakeholder engagement strategy must be developed as a parallel workstream to the legal and tax analysis - not as a downstream communication exercise.

Independent interim management provides a structural advantage: an experienced Italian executive representing the group in institutional and union settings - without the parent company's executives being directly exposed - consistently produces better stakeholder outcomes than remote headquarters management.

11. Pillar Two (GloBE) and DAC9

Pillar Two is fully operative from FY2024. Council Directive (EU) 2022/2523, transposed via D.Lgs. 209/2023, imposes a 15% global minimum ETR on groups with consolidated revenues of at least EUR 750 million. Italy has enacted a QDMTT.

For a group closing an Italian subsidiary: final-year losses reduce the Italian GloBE ETR, potentially triggering top-up taxes; deferred tax assets and liabilities require GloBE-specific treatment per OECD Administrative Guidance (January 2025); and Art. 182 TUIR liquidation tax rules interact with the GloBE substance-based income exclusion.

Council Directive (EU) 2025/872 (DAC9), adopted 14 April 2025, introduces a centralised GloBE Information Return. The closing Italian entity remains a constituent entity for the year of liquidation. The first GIR covering FY2024 is due 30 June 2026. GloBE data extraction must be completed before the entity is struck off the register.

12. EU Legislative Developments

ATAD3 (Unshell Directive) was formally abandoned per ECOFIN Report 9960/25 of 18 June 2025. EU Omnibus I (December 2025) narrowed CSRD scope to companies with more than 1,000 employees and turnover exceeding EUR 450 million; CSDDD compliance was deferred to 2029. The CJEU's X BV judgment (C-585/22, 2024) confirms that Italian TP adjustments involving EU intermediaries must satisfy an EU proportionality test. The European Commission's 2023 EU TP Directive proposal signals medium-term harmonisation; the OECD Chapter IX framework remains operative for wind-down planning in 2025-2027.

13. Independent Interim Management: Role, Capabilities, and Governance

Companies executing Italian wind-downs increasingly engage qualified interim executives with specialised restructuring and dissolution experience. These professionals provide six core capabilities.

1. Objectivity: independent managers execute the parent's strategy without career risk or divided loyalty.

2. Italian regulatory expertise: Law 223/1991 protocols; Civil Code Arts. 2484-2496; director liability stratification; tax compliance including exit taxation and TP; INPS/INAIL compliance; Art. 2112 risk identification; and GloBE data extraction.

3. Chapter IX-compliant documentation: the three-tier BEPS documentation structure (master file, local file, CbCR) must be maintained through the wind-down. ORA analysis and commercial rationale documentation require active management during - not after - execution. APA applications under Art. 31-ter D.P.R. 600/1973 should be considered in complex restructurings.

4. Director liability absorption: when appointed as formal directors or authorised signatories, interim managers assume personal liability under proper indemnification and D&O coverage.

5. Stakeholder intermediary: an experienced Italian executive in union, regulatory, and ministerial settings consistently outperforms remote headquarters management.

6. Audit-ready documentation: Italian tax audits regularly extend 5+ years post-closure. Contemporaneous documentation across TP, exit tax, labour, VAT, GDPR, and GloBE must be structured from day one.

13.1 PE Risk Generated by Interim Management Structures

An interim manager, local signatory, or restructuring executive with authority to contract on behalf of the foreign parent can itself constitute a dependent agent permanent establishment under Art. 162 TUIR. The risk arises where the interim manager habitually concludes contracts on behalf of the foreign parent, acts as authorised signatory for the foreign parent (as opposed to the Italian entity being wound down), or exercises management authority in Italy on behalf of the foreign parent beyond the liquidation phase.

Governance requirement: interim management mandates must be expressly scoped to acts required for the wind-down of the Italian entity - not extended to general representation of the foreign parent in Italy. Where transitional authority beyond liquidation is required, a PE risk assessment is mandatory before executing the mandate.
The interim manager's fees should be invoiced to and paid by the Italian entity during its active phase. Invoicing directly to the foreign parent for management services performed in Italy raises independent VAT fixed establishment and PE questions.

14. Critical Execution Errors

The following distils the most consequential execution failures in Italian wind-downs.

Error 1: Starting the labour procedure before completing TP analysis
Once union notification is filed, the restructuring is committed. TP positions, ORA documentation, and exit tax analysis must be finalised before announcement - not during consultation.

Error 2: Failing to document ORA contemporaneously
The ORA analysis must reflect what was genuinely considered at the time of decision. Post-hoc reconstruction after an audit begins will not satisfy Chapter IX standards.

Error 3: Liquidating the entity before extracting GloBE data
GloBE constituent-entity data, GIR filing inputs, and deferred tax calculations must be extracted and preserved before formal liquidation. Post-liquidation access to books and records is legally complex.

Error 4: Assuming no exit tax absent a written transfer agreement
Economic migration of functions, intangibles, or customer relationships - without any formal instrument - can trigger Arts. 166/166-bis TUIR. The absence of a legal agreement is not a defence; it is an audit risk factor.

Error 5: Underestimating VAT implications of intercompany settlements
Post-Arcomet, TP-based settlement payments may be VAT-taxable and trigger DAC6 disclosure simultaneously. A single closing payment can generate obligations across three separate regimes.

Error 6: Retaining Italian commercial activity post-liquidation without PE analysis
Transitional consultants, warehousing, or remote management from Italy can create a PE or VAT fixed establishment of the foreign parent. This is not hypothetical - it regularly materialises.

Error 7: Ignoring Art. 2112 when migrating functions to another entity
Art. 2112 activates automatically based on economic continuity. Employment contracts and liabilities transfer to the successor entity without any written agreement. This is among the most operationally disruptive outcomes of Italian wind-down mis-execution.

15. Execution Roadmap

Phase 1: Pre-Announcement Preparation (Weeks 1-4)

Phase 2: Formal Initiation (Weeks 5-8)

Phase 3: Execution and Closure (Weeks 9-20)

Phase 4: Formal Liquidation (Weeks 21-52)

16. The Hybrid Model: Internal Strategy, External Execution

17. Regulatory Framework Summary - May 2026

The table below summarises the key regulatory and case-law frameworks relevant to Italian wind-downs as of May 2026.

Conclusion

Tax-driven conversions unlock significant value. They also generate complex, interlocking obligations that cannot be managed sequentially. For multinationals with Italian subsidiaries, the wind-down phase is the highest-risk segment of any restructuring.

The OECD Chapter IX framework governs every conversion step. Italian courts confirm that documentation quality determines the audit burden allocation. Post-closure PE and VAT fixed establishment risk survives the liquidation. Art. 2112 recharacterisation attaches automatically to function migration. The regulatory environment has delivered meaningful relief - ATAD3 is abandoned, CSRD scope is narrowed - but the core execution risks have intensified.

Success requires: rigorous contemporaneous Chapter IX and ORA documentation; precise exit tax scoping; PE clean-break planning; Art. 2112 risk identification before operational decisions; structured VAT deregistration; GloBE-aware financial modelling; proactive stakeholder engagement; and independent, non-conflicted interim management with properly governed mandates.

The question is not whether to engage independent management. It is whether the engagement begins early enough to shape the design - not merely manage the execution.

References

1. Albano G. & Zampini F., 'Le operazioni di business restructuring', in Della Valle E., Maisto G., Miele L. (a cura di), Il transfer pricing nell'ordinamento tributario italiano, Giappichelli, Torino, 2024.

2. OECD, Transfer Pricing Guidelines, January 2022 edition, Chapter IX. oecd.org

3. Garcia-Bernardo J. & Jansky P., 'Profit Shifting of Multinational Corporations Worldwide', 2024.

4. Stanford SIEPR, 'Best-Laid Plans: How Multinationals Minimize Taxes', 2022. siepr.stanford.edu

5. EY, Tax Risk & Controversy Survey 2023. ey.com

6. Eurofound, Restructuring Across Borders, ERM Report 2020.

7. Council Directive (EU) 2022/2523 (Pillar Two / GloBE). eur-lex.europa.eu

8. D.Lgs. 209/2023 - Italian transposition of the EU Minimum Tax Directive.

9. Council Directive (EU) 2025/872 (DAC9). eur-lex.europa.eu

10. OECD, Administrative Guidance on GloBE Rules, January 2025.

11. ECOFIN Report 9960/25 of 18 June 2025 - Formal abandonment of ATAD3.

12. EU Omnibus I - CSRD/CSDDD amendments, December 2025.

13. Council Directive (EU) 2023/2226 (DAC8). eur-lex.europa.eu

14. CJEU, Case C-726/23, Arcomet Towercranes, judgment 4 September 2025.

15. Agenzia delle Entrate, Risposta a interpello n. 214/2025 (19 August 2025).

16. Agenzia delle Entrate, Risposta a interpello n. 884/2021.

17. Agenzia delle Entrate, Risoluzione n. 78/E/2021.

18. CJEU, Case C-527/23, Weatherford Atlas Gip, judgment 12 December 2024.

19. CJEU, Case C-585/22, X BV, 2024.

20. Corte di Cassazione, nn. 10577/2024 and 10499/2024 - Burden of proof in TP audits.

21. Corte di Cassazione, nn. 15668/2022 and 26695/2022 - Burden of proof: foundational precedents.

22. Corte di Cassazione, n. 36275/2022 - TP method correction.

23. Corte di Cassazione, n. 7163/2026 - Administration must prove arm's length deviation.

24. D.Lgs. 14/2019 as amended September 2024 (Italian Crisis Code).

25. D.Lgs. 74/2000 - Italian criminal tax provisions.

26. Arts. 166 and 166-bis TUIR - Italian exit taxation.

27. Art. 162 TUIR - Italian permanent establishment.

28. Art. 2112 Civil Code - Transfer of business; automatic employee transfer.

29. Art. 36 D.P.R. 602/1973 - Personal liability of liquidators.

30. D.Lgs. 23/2015 (Jobs Act); Law 223/1991.

31. Art. 31-ter D.P.R. 600/1973 - Advance pricing agreements.

32. Regulation (EU) 2016/679 (GDPR); D.Lgs. 196/2003.

33. European Commission, Proposal for an EU Transfer Pricing Directive, 2023.

34. European Parliament, Resolution on TP Harmonisation, 2024.

35. OECD, TP Country Profiles, 2025 edition. oecd.org

Disclaimer

This paper is for general informational and educational purposes only and does not constitute legal, tax, accounting, or professional advice. The information reflects regulatory frameworks and market practices as of May 2026 and may not reflect subsequent changes in Italian or international law. Consult qualified advisors for guidance specific to your circumstances.