The economic world is increasingly interconnected, and understanding financial and tax regulations relating to permanent establishments, or branches, has become essential for companies operating internationally. In this regard, the Bank of Italy has published a document, Branch Reporting, which provides a clear and detailed overview of the rules governing both foreign branches of Italian companies and Italian branches of foreign companies. The guidelines set out by the Bank of Italy emphasise the importance of the accounting autonomy of foreign branches and outline their reporting responsibilities for companies. With a focus on how these regulations affect transactions and financial positions of foreign branch offices, the Bank of Italy aims at providing companies with the necessary tools to effectively understand the complex regulatory framework.
Financial autonomy in branches of Italian companies. Foreign Resident and Non-Resident Branch. Accounting Autonomy
If the foreign branch of an Italian company has accounting autonomy, it is considered resident in the country where it is located. In this case, the branch is considered a separate entity from the parent organisation, and transactions between the parent company and the branch are treated as non-resident transactions. If a foreign branch does not have accounting autonomy, on the other hand, it is considered an integral part of the Italian parent company and its transactions and credit/debit positions must be considered its own. For those cases where foreign branches do have accounting autonomy, the Italian parent organisation must report any credit/debit positions and transactions with the branch in the EMF, CAF, OMF and TTN questionnaires. Each questionnaire covers specific aspects such as setting up a new branch, capital increases, loss settlements and other financial assets/liabilities. For branches without accounting autonomy, the Italian parent company must report all credit and debit positions and transactions of the branch as its own. This includes any financial assets and liabilities towards other non-residents, as well as all non-financial transactions of the branch with counterparties residing in other countries.
Foreign company branches in Italy
When open company in Italy, a branch set up in Italy by a foreign company is also considered resident in Italy if it has accounting autonomy. Transactions with the parent company, as well as credit and debit positions of the branch in Italy are considered exchanges with non-residents. Whereas if the branch in Italy does not have accounting autonomy, it is considered part of the foreign parent company and no reporting is due. The reporting requirements for branches in Italy with accounting autonomy include the reporting to the bank of Italy of credit/debit positions and transactions with the foreign parent organisation in the EMF, CAF, OMF and TTN questionnaires. The guide published by the BoI provides detailed suggestions for Italian and foreign companies regarding the management and reporting of their branches, both in Italy and abroad, based on their accounting autonomy. These guidelines are essential to ensure that companies comply with financial and tax regulations, and pave the way to a transparent and regulated business environment.
