Corporate Exit Taxation in Italy: An Analysis of Article 166 TUIR
Executive Summary
When an Italian-resident company transfers its tax residence abroad, Italian tax law treats the transfer as a deemed disposal of business assets at fair market value, triggering immediate recognition of unrealised capital gains — the so-called exit tax, governed by Article 166 of the Testo Unico delle Imposte sui Redditi (TUIR), as comprehensively rewritten by Legislative Decree No. 142 of 29 November 2018 implementing Directive (EU) 2016/1164 (the ATAD).
The key practical consequences are as follows. The taxable gain is computed as the difference between the aggregate fair market value and the fiscally recognised cost basis of all assets and liabilities that are not allocated to a permanent establishment (PE) remaining in Italy. Additionally, tax-suspended reserves (riserve in sospensione d'imposta) that are not reconstituted in the accounts of an Italian PE are brought into charge in the same period. For transfers to EU or qualifying EEA Member States, the taxpayer may opt to pay the resulting tax in five equal annual instalments, subject to possible guarantees; for transfers to third countries, immediate payment is required. The prior regime — which allowed full suspension of collection until actual realisation — was abolished by D.Lgs. 142/2018.
The PE carve-out is a central structural element: assets that continue to be subject to Italian taxing power through a domestic PE fall outside the scope of the exit charge. This principle was confirmed and refined in a significant administrative ruling of July 2025, where the Italian tax authorities clarified that assets attributable to a foreign PE operating under the branch exemption regime (BEX, Art. 168-ter TUIR) are likewise excluded from the exit tax base, as Italy has already definitively relinquished taxing jurisdiction over those assets.
In the context of EU treaties, an important nuance concerns the tie-breaker mechanism for dual corporate residence: the 2017 revision of the OECD Model Tax Convention, and the subsequent implementation of the Multilateral Instrument (MLI) into Italy's treaty network, has replaced the automatic place-of-effective-management (POEM) tie-breaker in many covered agreements with a mutual agreement procedure (MAP). Practitioners must therefore verify whether the applicable treaty has been modified by the MLI, as failure to reach a competent authority agreement may leave a dual-resident company without treaty protection.
1. Introduction
The outbound transfer of corporate tax residence is one of the most consequential events in international tax planning. From the perspective of the exit State, such a transfer threatens the permanent erosion of a tax base that has accrued during years of domestic activity. From the perspective of the enterprise, the immediate crystallisation of latent gains on unrealised assets can represent a prohibitive obstacle to legitimate reorganisation. The tension between these competing interests lies at the heart of exit taxation doctrine, and has been the subject of extensive litigation before the Court of Justice of the European Union (CJEU) as well as sustained legislative attention at both the Italian and European levels.
In Italy, the legal framework is primarily contained in Article 166 TUIR, whose current formulation derives from the implementation of the Anti-Tax Avoidance Directive (ATAD, Directive (EU) 2016/1164), transposed by Legislative Decree No. 142 of 29 November 2018 (Decreto ATAD). The operative provisions have been complemented by a Ministerial Decree of 14 May 2018 on transfer pricing methodology and by the implementing rules in the TUIR itself. The legislative history of Article 166 is, however, longer, passing through earlier interventions — notably Article 11 of the Decreto Internazionalizzazione (D.Lgs. 14 September 2015, No. 147) — and has been the subject of a body of administrative practice (prassi) and scholarly commentary (dottrina) that assists in its interpretation.
2. The Italian Concept of Corporate Tax Residence
Before examining the exit tax itself, it is necessary to understand the conditions under which Italian tax residence attaches and, consequently, when its loss triggers the exit charge.
Under Article 73(3) TUIR, companies and commercial entities are considered tax resident in Italy if, for the greater part of the tax period (periodo d'imposta), they have at least one of the following connecting factors within Italian territory: (i) the legal seat (sede legale); (ii) the place of effective management (sede di direzione effettiva); or (iii) the place of main ordinary management (gestione ordinaria in via principale). These are alternative and independent criteria: satisfaction of any one of them is sufficient to establish and maintain Italian residence. Accordingly, a company that relocates its registered office abroad does not necessarily lose Italian tax residence if its effective management or ordinary management continues to be exercised from Italy.
The concept of sede di direzione effettiva broadly corresponds to the OECD's notion of "place of effective management" (POEM), understood as the location where key management and commercial decisions are made. The interplay between Italian domestic residence criteria and treaty tie-breaker rules becomes particularly important in cases of dual residence, addressed further below.
3. Legislative History and the Role of CJEU Case Law
3.1 Pre-ATAD Framework
Prior to 2015, Article 166 TUIR provided for immediate taxation of unrealised gains upon exit, with no distinction drawn by destination State. This regime was progressively challenged before the CJEU as incompatible with the freedom of establishment enshrined in Articles 49 and 54 TFEU. The two pivotal judgments are those in National Grid Indus BV (CJEU, Grand Chamber, 29 November 2011, Case C-371/10) and Commission v. Portugal (CJEU, 6 September 2012, Case C-38/10).
In National Grid Indus, the Court held that national legislation imposing immediate and final taxation on unrealised capital gains upon transfer of a company's POEM to another Member State constitutes a restriction on the freedom of establishment. While the Court accepted that preserving the allocation of taxing rights between Member States constitutes a legitimate objective capable of justifying such a restriction, it found that immediate and unconditional collection is disproportionate. The Court indicated that legislation offering a choice between immediate payment and deferred payment — possibly with interest — would represent a proportionate measure. In Commission v. Portugal, the Court extended and refined these principles, confirming their application to the transfer of assets from a PE to a head office or another PE located in a different Member State.
These rulings were the direct catalyst for the Italian Decreto Internazionalizzazione (D.Lgs. 147/2015), which introduced — for the first time in Italian domestic law — a suspension regime allowing companies migrating to EU or qualifying EEA states to defer collection until actual realisation of the transferred assets.
3.2 The ATAD Reform: D.Lgs. 142/2018
The ATAD (Directive (EU) 2016/1164), transposed into Italian law by D.Lgs. 142/2018, introduced a harmonised minimum standard for exit taxation applicable to all EU Member States. Crucially, the Directive mandated a shift in approach: rather than allowing open-ended deferral tied to actual realisation, Member States must permit payment in at least five annual instalments where the destination is an EU or qualifying EEA State, but are not required to allow indefinite suspension.
Accordingly, D.Lgs. 142/2018 comprehensively rewrote Article 166 TUIR with effect from the tax period following 31 December 2018, making the following principal changes: (i) the criterion for computing gains shifted from valore normale (comparable to the pre-2012 standard) to valore di mercato (fair market value), determined by reference to the criteria in the Ministerial Decree of 14 May 2018 issued pursuant to Article 110(7) TUIR, with goodwill expressly included in the valuation of business complexes and branches; (ii) the prior suspension regime, under which collection was deferred until actual realisation, was abolished and replaced by the five-instalment option for EU/EEA transfers; and (iii) the scope of the provision was reorganised and extended to cover a broader range of outbound cross-border transactions.
It is worth noting, as the dottrina has observed (see EY, Nota a margine della nuova disciplina di exit tax, Rivista di Diritto Tributario Online, 2019), that the legislative intention was principally one of systemic rationalisation rather than substantive expansion, though the rewrite did introduce certain open interpretive questions — particularly regarding the treatment of liabilities in the PE asset-transfer scenarios under Article 166(1)(d) TUIR.
4. Scope of Application: Subject-Matter and Triggering Events
4.1 Taxpayers Within Scope
Article 166 TUIR applies to soggetti che esercitano imprese commerciali, that is, all persons conducting commercial enterprises for Italian tax purposes. This encompasses, in the order most commonly encountered: (i) resident companies subject to IRES (società di capitali, including S.p.A. and S.r.l.); (ii) commercial partnerships (società di persone, such as S.n.c. and S.a.s.); and (iii) individual entrepreneurs (imprenditori individuali). The inclusion of commercial partnerships and sole traders reflects the broad functional approach adopted by the Italian legislator, consistent with the ATAD's scope.
4.2 Triggering Events
Article 166(1) TUIR identifies five categories of transaction that give rise to the exit charge:
(a) Italian-resident companies that transfer their tax residence abroad (trasferimento della residenza fiscale all'estero). This is the paradigmatic case, and is the primary subject of this article.
(b) Italian-resident companies that transfer assets to their foreign PEs, where those companies have exercised the branch exemption option under Article 168-ter TUIR (BEX).
(c) Non-resident companies with a PE in Italy that transfer the entire Italian PE abroad to the head office or to another foreign PE.
(d) Non-resident companies with a PE in Italy that transfer individual assets belonging to the Italian PE to the head office or to another foreign PE.
(e) Italian-resident companies involved in outbound cross-border extraordinary transactions, including: mergers in which a foreign company is the surviving entity; demergers with one or more non-resident beneficiaries; and contributions of a PE or a business unit located abroad to a non-resident entity.
The common denominator across these triggering events is the loss of Italian taxing jurisdiction over the assets in question — in other words, the passage of value outside the reach of the Italian fiscal system without a corresponding realisation event. Recital 10 of the ATAD confirms this logic: Member States must be able to tax economic value generated within their territory, even where that value has not yet been realised in the form of a market transaction.
5. Computation of the Taxable Gain
5.1 The Unified Gain (Plusvalenza Unitariamente Determinata)
For the paradigmatic case of a company transferring its residence abroad (Article 166(1)(a)), the taxable gain is computed on a unitary basis (plusvalenza unitariamente determinata), as the difference between the aggregate fair market value and the aggregate fiscally recognised cost basis of all assets and liabilities of the departing company that are not allocated to a remaining Italian PE. This unitary approach — confirmed in administrative practice (see also Risposta ad Interpello No. 336 of 10 September 2020, AE) — reflects the treatment of the departing entity as a going concern rather than a collection of individual assets. A disaggregated, asset-by-asset approach is not permitted.
The rateizzazione option applies to the exit tax computed on this unitary gain: pursuant to Article 166(10) TUIR, the instalment election must cover the entire exit tax as determined on the aggregate gain; it cannot be applied selectively to individual assets.
5.2 Fair Market Value and Goodwill
Under Article 166(4) TUIR, fair market value is determined by reference to the conditions and prices that would be agreed by independent parties operating at arm's length in comparable circumstances. For valuations of a business complex or a branch, the calculation expressly includes goodwill (avviamento), assessed by considering the functions performed and risks assumed by the departing entity. The methodological framework is that of the Ministerial Decree of 14 May 2018 on transfer pricing, issued pursuant to Article 110(7) TUIR. This represents a significant evolution from the pre-ATAD regime, under which the inclusion of goodwill in the exit tax base was contested.
5.3 Tax-Suspended Reserves
Pursuant to Article 166(5) TUIR, in the cases under paragraphs (a) and (e), tax-suspended reserves (riserve in sospensione d'imposta) — including those taxable only upon distribution — that appear in the balance sheet at the end of the last period of Italian residence are brought into the income tax charge, to the extent that they are not reconstituted in the accounts of an Italian PE. An analogous rule applies to the case under paragraph (c) (transfer of the entire PE), by reference to the PE's profit and loss account and balance sheet (rendiconto economico e patrimoniale) under Article 152(1) TUIR.
This element of the exit tax base is frequently overlooked in practice, yet it can represent a material component of the aggregate charge — particularly in capital-intensive companies that have accumulated significant amounts in investment contribution reserves (contributi in conto impianti) or accelerated depreciation reserves recognised for fiscal but not accounting purposes.
5.4 Treatment of Tax Losses
Accumulated tax losses may be set off against the exit tax base. Pursuant to the implementing provisions, prior-year losses not yet utilised reduce first the taxable income of the final period of Italian residence (including other components not eligible for the PE carve-out); any excess, together with current-year losses, reduces the suspended or immediately taxable gain on transferred assets. Residual losses are then subject to the ordinary limitations under Article 166 TUIR, and cannot be exported to the destination jurisdiction.
6. The Permanent Establishment Carve-Out
6.1 General Principle
The exit tax does not apply to assets that continue to be attributed to a PE remaining within Italian territory following the transfer of residence. Assets so allocated remain subject to Italian taxing jurisdiction and, accordingly, do not give rise to a deemed realisation. However, should those assets subsequently be transferred out of the Italian PE or cease to be attributable to it, the deferred taxing event is triggered at that point.
This carve-out reflects the structural logic of Article 166: the exit charge is not a penalty for mobility, but a mechanism to ensure that gains accrued under Italian jurisdictional oversight do not escape Italian taxation permanently by virtue of a change in the residence connecting factor. Where a PE substitutes for residency as the nexus of Italian taxing power, no discontinuity in that power arises and no exit charge is warranted.
6.2 The BEX Interaction: Risposta ad Interpello No. 185/2025
A significant development in the administrative interpretation of Article 166 TUIR occurred in July 2025 with the publication of Risposta ad Interpello No. 185 of 8 July 2025 (Agenzia delle Entrate). The case concerned an Italian-resident company (ALFA S.p.A.) belonging to a multinational group, which exercised its principal business activity abroad through a foreign PE in respect of which it had exercised the BEX option under Article 168-ter TUIR. The company contemplated transferring its own tax residence from Italy to the United Kingdom.
The tax authorities held that the capital gains attributable to the assets and liabilities of the foreign PE operating under the BEX regime do not enter into the exit tax base under Article 166(3)(a) TUIR. Neither the fair market value nor the fiscally recognised cost of those assets and liabilities is to be taken into account. The reasoning is that the BEX regime operates as a definitive — not merely temporary — transfer of taxing jurisdiction from Italy to the State in which the foreign PE is located. Once the BEX option is exercised, Italy permanently relinquishes its claim over income attributable to the foreign branch; accordingly, there are no Italian-sourced latent gains to protect at the moment of corporate residence transfer. The ruling is of considerable importance for groups with Italian holding or intermediate companies that have already opted for BEX on their foreign operations and are contemplating an outbound restructuring.
7. The Collection Regime: Immediate Payment and the Instalment Option
7.1 General Rule: Immediate Taxation
As a general principle, the exit tax crystallises in the last tax period of Italian residence (or at the moment of completion of the relevant extraordinary transaction) and is due according to the ordinary terms applicable to the corporate income tax (IRES) and, where applicable, regional production tax (IRAP). No suspension of collection is available: the suspension regime that existed under the pre-2019 regime (introduced by D.Lgs. 147/2015) was abolished by D.Lgs. 142/2018 as incompatible with the harmonised ATAD framework.
For transfers to non-EU, non-qualifying-EEA destinations, immediate payment of the full exit tax is required.
7.2 Instalment Option for EU and EEA Transfers
Where the destination is an EU Member State or an EEA State included in the relevant list under Article 11(4)(c) of D.Lgs. 1 April 1996, No. 239, and that State has concluded with Italy an agreement for mutual assistance in tax collection comparable to that assured by Directive 2010/24/EU, the taxpayer may opt — upon request and subject to the provision of any required guarantees — to pay the exit tax in five equal annual instalments (cinque rate annuali di pari importo), pursuant to Article 166(9) TUIR.
Pursuant to Article 166(11) TUIR, interest accrues at the rate prescribed by Article 20 of D.Lgs. 9 July 1997, No. 241, on instalments following the first. The instalment option must, as noted above, cover the entire exit tax computed on the unified gain and cannot be applied selectively.
The instalment option may be accelerated or terminated in certain events: principally, where the assets concerned are subsequently disposed of, the company enters liquidation, further transfers the assets to a non-qualifying jurisdiction, or otherwise ceases to be subject to qualifying mutual assistance arrangements. These monitoring obligations, established in implementing decrees, impose ongoing compliance burdens that practitioners must track over the five-year collection window.
8. Dual Residence and Treaty Tie-Breaker Rules
8.1 The Domestic Position
A company may satisfy the Italian residence criteria under Article 73(3) TUIR while simultaneously being considered resident in the destination State under that State's domestic law — a situation of dual corporate residence. Under Italian domestic law, dual residence does not of itself determine which State may tax; treaty provisions govern the resolution of the conflict.
8.2 The Pre-MLI Regime: POEM as Tie-Breaker
Under the OECD Model Tax Convention as formulated prior to the 2017 revision, Article 4(3) provided that a dual-resident company shall be treated as a resident only of the Contracting State in which its place of effective management is situated. This POEM tie-breaker was automatically determinative: once the place of effective management was identified, treaty residence was assigned and the other State's taxing claims were restricted. The majority of Italy's bilateral tax treaties — of which there are over ninety — were concluded under this approach.
8.3 The Post-MLI Position: MAP and the Risk of Treaty Denial
The 2017 revision of the OECD Model Tax Convention fundamentally altered the tie-breaker mechanism for dual corporate residence. Under the revised Article 4(3), where a company other than an individual is a dual resident, the competent authorities of both Contracting States shall endeavour to determine by mutual agreement (procedura amichevole) the State of which that person shall be deemed a resident, having regard to its place of effective management, its place of incorporation or constitution, and any other relevant factors. Critically, in the absence of such agreement, the dual-resident entity is not entitled to any relief or exemption from tax provided by the applicable treaty.
This revised rule was incorporated into the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the MLI), ratified by Italy. For treaties that are "Covered Tax Agreements" under the MLI and in respect of which neither party has reserved out of Article 4, the MAP mechanism now governs dual-residence resolution. The practical consequence is significant: a company that finds itself dual-resident under both Italian and foreign domestic law, and that cannot or does not secure a competent authority agreement, loses treaty protection entirely — a materially worse outcome than under the automatic POEM tie-breaker. Practitioners advising on outbound transfers must verify, for the applicable treaty, whether the MLI has modified the tie-breaker provision and whether arbitration is available in the event of MAP deadlock.
It should be noted that the Italian treaty network contains treaties at varying stages of MLI applicability, and many older treaties retain the pre-2017 POEM automatic tie-breaker. The determination of which rule applies requires examination of the specific treaty as modified, as published by the OECD's MLI matching database.
9. The Transfer of Legal Seat: Corporate Law Dimensions
The transfer of the registered office (sede legale) is one of the connecting factors for Italian tax residence under Article 73(3) TUIR and therefore constitutes one mechanism by which a company may lose Italian tax residence. Such a transfer is, however, far more than a fiscal event: it engages the substantive corporate law of both the departure and arrival jurisdictions and must satisfy conflict-of-laws requirements in both.
Within the European Union, the legal feasibility of cross-border transfers of registered office has been progressively established through CJEU case law. In Cartesio (CJEU, Grand Chamber, 16 December 2008, Case C-210/06), the Court acknowledged the ability of Member States to define the connecting factors for corporate nationality under their own law, but accepted that a company seeking to convert into a form governed by the law of another Member State could invoke the freedom of establishment to resist dissolution in the exit State. In Polbud — Wykonawstwo (CJEU, Grand Chamber, 25 October 2017, Case C-106/16), the Court confirmed that the freedom of establishment protects the conversion of a company from one Member State's legal form to another, even without transfer of its registered office or central administration, while clarifying that exit States may impose reasonable conditions — including those protecting creditors and minority shareholders — provided they are proportionate.
Within the EU framework, these developments are now consolidated by the Cross-Border Conversions Directive (Directive (EU) 2019/2121), which harmonises procedural requirements for cross-border conversions, mergers, and divisions within the EU, including the mechanism by which a company's registered office migrates across Member State boundaries.
For the transfer to achieve a change in tax residence, the relevant analysis must confirm that, following the transfer, none of the three connecting factors under Article 73(3) TUIR (legal seat, effective management, ordinary management) remains in Italy for the greater part of the tax period. A transfer of registered office that leaves effective or ordinary management in Italy will not alter the company's Italian tax residence status and will not, therefore, trigger the exit charge — though it may create dual-residency complications for treaty purposes.
For detailed guidance on the corporate law framework governing cross-border transfers and international transformations (trasformazioni internazionali), reference may be made to Consiglio Nazionale del Notariato, Il trasferimento della sede sociale all'estero e la trasformazione internazionale (Study No. 182-2015/I, approved January 2016).
10. Impact on Shareholders
The exit tax under Article 166 TUIR is an entity-level charge and does not, as a general rule, give rise to fiscal consequences at the shareholder level for shareholders of companies subject to IRES (S.p.A., S.r.l.). The position differs, however, in the case of commercial partnerships (società di persone), which are fiscally transparent under the Italian tax regime. Because partners of a partnership are taxed on their proportionate share of the partnership's income on an accruals basis under the transparency principle (Articles 5 and 6 TUIR), the exit gain computed at the partnership level is attributed to and taxed in the hands of the individual partners in the last period of Italian residence, irrespective of actual distribution. The timing and mechanics of this attribution can be complex, particularly where the partners themselves have different levels of Italian fiscal connection.
11. Interaction with the Extraordinary Transactions Regime
Article 166 TUIR explicitly applies in respect of certain outbound cross-border extraordinary transactions, including cross-border mergers and demergers under which assets leave Italian taxing jurisdiction. It should be noted — as confirmed in the explanatory report (relazione illustrativa) to D.Lgs. 142/2018 and acknowledged in academic commentary — that the amendments introduced by the Decreto ATAD do not affect the separate, autonomous regime governing intra-EU extraordinary transactions under Articles 179 and following of the TUIR, which in principle ensures fiscal neutrality for qualifying EU cross-border mergers, demergers, and contributions. Where the specific requirements of the Articles 179 ff. regime are met, that regime prevails; Article 166 operates where those conditions are not satisfied or where the transaction is not of the qualifying type.
References
Legislation
— Art. 166 TUIR (D.P.R. 22 December 1986, No. 917), as substituted by D.Lgs. 29 November 2018, No. 142, Art. 2
— Art. 166-bis TUIR, as introduced by D.Lgs. 14 September 2015, No. 147, Art. 12
— Art. 168-ter TUIR (branch exemption)
— D.Lgs. 14 September 2015, No. 147 (Decreto Internazionalizzazione), Art. 11
— D.Lgs. 29 November 2018, No. 142 (Decreto ATAD)
— Directive (EU) 2016/1164 (ATAD), in particular Recital 10 and Arts. 5–7
— Ministerial Decree (Decreto MEF) 14 May 2018 (transfer pricing methodology, pursuant to Art. 110(7) TUIR)
— Directive (EU) 2019/2121 (Cross-Border Conversions Directive)
— OECD Multilateral Convention (MLI), Arts. 4, 16 (Italian ratification: L. 10 June 2021, No. 83)
— OECD Model Tax Convention (2017 revision), Art. 4(3) (dual-residence tie-breaker)
CJEU Case Law
— CJEU, Grand Chamber, 29 November 2011, Case C-371/10, National Grid Indus BV v. Inspecteur van de Belastingdienst Rijnmond/kantoor Rotterdam (exit tax and freedom of establishment; proportionality; instalment as less restrictive alternative)
— CJEU, 6 September 2012, Case C-38/10, Commission v. Portugal (exit tax on PE asset transfers; extension of National Grid Indus principles)
— CJEU, 23 January 2014, Case C-164/12, DMC GmbH (exit tax on contributions in kind to non-resident entity)
— CJEU, Grand Chamber, 16 December 2008, Case C-210/06, Cartesio (corporate mobility and seat transfer)
— CJEU, Grand Chamber, 25 October 2017, Case C-106/16, Polbud — Wykonawstwo (cross-border conversion and freedom of establishment)
Administrative Practice (Prassi)
— Agenzia delle Entrate, Risposta ad Interpello No. 185 of 8 July 2025 (exit tax and branch exemption: BEX assets excluded from exit tax base)
— Agenzia delle Entrate, Risposta ad Interpello No. 336 of 10 September 2020 (exit tax; PE substitution; VAT effects)
— Agenzia delle Entrate, Risposta ad Interpello No. 460 of 31 October 2019 (Art. 166-bis; entry tax on cross-border merger with concurrent inbound transfer)
— Agenzia delle Entrate, Circolare No. 36/E of 4 August 2004 (PEX and exit tax; first administrative interpretation)
Doctrine and Commentary
— EY, Nota a margine della nuova disciplina di exit tax (art. 166 TUIR post D.Lgs. 142/2018), Rivista di Diritto Tributario Online, June 2019
— Morgillo, A., Exit tax e libertà di trasferimento. Il caso National Grid Indus, Rivista di Diritto Tributario Internazionale, 2012, No. 2, pp. 202–230
— Consiglio Nazionale del Notariato, Il trasferimento della sede sociale all'estero e la trasformazione internazionale, Studio No. 182-2015/I, approved January 2016
— OECD, Explanatory Statement to the Multilateral Convention (MLI), 2016, paras. 82–90 (Art. 4 tie-breaker)
This article is intended for general informational and academic purposes. It does not constitute legal or tax advice. Tax laws are subject to change and readers should seek qualified professional advice tailored to their specific circumstances.