With tax ruling n. 18/2022 of January 12, 2022 (Risposta_18_12.01.2022), the Italian tax agency ruled that for the foreign branch tax exemption to apply, a permanent establishment must exist in the foreign jurisdiction, fully taxable in the host country under both foreign country’s domestic tax law and any applicable tax treaty between Italy and the host country. The Italian Income Tax Code allows an Italian corporate taxpayer to elect that the profits attributable to a taxpayer’s branch in a foreign country be exempt from corporate tax in Italy. The default tax regime that applies in the absence of an election allows a tax credit against Italy’s corporate tax, for the amount of foreign income taxes accrued and due in the foreign country, in respect of the foreign branch’s taxable profits. Ruling n. 18/2022 involved an Italian manufacturer of electric and electronic equipment sold in Italy and abroad. The Italian company won the bid for a supply agreement with a foreign client, and in order to serve that agreement it registered a branch in the foreign country, and positioned there a warehouse with equipment and machines, and personnel which would provide technical measurements, testing and training services to its local customer. The Tax Agency argued that for the purpose of the foreign branch exemption of section 168-ter of Italy’s income tax code, a taxpayer must maintain an organization or set of activities in the foreign country which meets the definition of permanent establishment, as set forth under the internal tax laws of the foreign country and the applicable tax treaty, and the permanent establishment must be fully taxable in the foreign country, under local tax laws and the relevant tax treaty. With specific reference to the facts of the ruling, the Tax Agency ruled that the requirements for the exemption were met. The ruling seems to go beyond the scope of the statute governing the foreign branch exemption and require perfect symmetry between the recognition and tax treatment of the branch in the host and home countries.The statutory provision of the Code, on its face, only requires that the taxpayer maintain a permanent establishment in the foreign country, as defined under Italy’s tax code, and does not require any investigation as to whether a permanent establishment or other form of tax presence exist also under local law, and the foreign country actually asserts its tax power over the local branch. In the ruling, the Tax Agency does not address the issue of computation of local branch’s taxable income and amount of foreign tax credit, under host and home country’s and tax laws.