Italian Regional Tax Court found that a Madeira company engaged in the business of purchasing and selling goods had its permanent establishment in Italy, were the contracts were negotiated and the business was supervised by its shareholders (CTR Toscana 88/18/08 of 7.11.2008.pdf).
As a result, in judgment n. 88/18/08 of November 7, 2008 (which affirmed the trial court judgment) the Regional Tax Court of Tuscany held that the Madeira company was liable to tax in Italy for an amount of over 5 million euros.
The Madeira company (previously organized in Gibraltar) purchased and sold goods (with an annual turnover of several million euros). It was subject to zero or low tax in Madeira. The company had one office and one part time employee in Madeira. Its contracts were negotiated and executed and its business was supervised by its shareholders in Italy.
The Regional Tax Court applied the analysis of the Supreme Court in the seminal Philip Morris cases (see Supreme Court judgment n. 7682 of 2002.pdf) and found that the Madeira company had a permanent establishment in Italy, were contractual negotiations were conducted and the business of the company was supervised, and held that all of the profits of the company were attributable to its Italian permanent establishment and subject to tax in Italy.
The Court also noted that it was not credible that an active business for an annual revenue of several million euros could be conducted through one part time employee out of one office in Madeira, which reinforced the conclusion that the company had its permanent establishment in Italy through which it actually carried out its business and realized its profit.