4.
AGENCY, DISTRIBUTION AGREEMENTS AND OTHER ALTERNATIVES
a) The alternatives to setting up a new
company
For a series of commercial reasons
relating to the nature of the proposed business and the local market the
foreign investor may decide to acquire an existing business rather than
commence a new activity from scratch. This may be achieved either by acquiring
shares in an existing company or by purchasing the assets. If a business licence
is required but not readily available then he will need to acquire a going
concern complete with business licence as, in Italy, a licence is not
transferable on its own without the underlying business assets.
In the acquisition of a business, the
transferee will be careful to limit certain risks. He is jointly liable with
the transferor for any debt shown in the mandatory commercial records (Art.
2560 CC) and for any claim the employees had at the time of the sale (Art. 2112
CC). If the seller has not given proper notice to his employees and settled all
severance pay issues, the transferee will purchase the business subject to the
employment contracts and will be liable for the severance allowance due to the
employees before the transfer (Art. 2112 CC). He will also be responsible for
nay pending tax liability and will acquire the business subject to all
contracts previously entered into. The purchaser of a business will therefore
need to ensure that these matters are properly addressed in the purchase agreement
and that appropriate warranties and indemnities are granted by the seller.
In acquiring control of a substantial
business of national importance, the foreign investor must take care to comply
with the competition rules concerning
concentrations.
In the event that the investor should
decide to acquire a share participation it is always advisable that this be
done on the basis of an extensive due diligence and an independent evaluation
of the company assets. The investor should be aware that in becoming a
shareholder he participates in the company subject to all the liabilities of
the company. In deciding whether to acquire shares or merely the assets, the
investor should consider that purchase of shares is not subject to VAT but to a
securities transfer tax of 0.014 per cent and must be executed before a notary
public, while transfer of single assets is subject to 20 per cent VAT and to a
registration tax of Lit. 150,000.
Where the Italian market for an exporter's
products is not sufficiently large to justify establishment of a branch or
subsidiary in Italy, distribution or agency arrangements with Italian
enterprises or individuals provide a viable alternative. There are important
distinctions in Italian law between distribution and an agency agreement, and
before entering into either of these types of arrangements a foreign exporter
should be fully aware of the obligations and liabilities inherent in, and the
differences between, the two types of agreement.
b) Distribution Agreements. - A
distributor is essentially an independent business buying and selling goods in
his own name. Title to the goods pass to him from his supplier under a normal
sales contract. In a distribution arrangement, the distributor assumes all of
the financial obligations and risks connected with the distribution of the
products in Italy. A foreign exporter will not be subject to Italian income tax
on sales made in Italy through a distributor, since he will not have a
permanent establishment in Italy.
c) Agency Agreements. - The appointment
of an agent, especially if it is an exclusive and sole agency, involves some
risk that the foreign principal be deemed to have a permanent establishment in
Italy and may therefore be subjected to Italian income tax. Careful drafting so
as to exclude contracting powers will eliminate this risk. The Italian tax
authorities have not taken a consistent position on the issue of when the
presence of an agent in Italy necessarily constitutes a permanent establishment
for tax purposes. However, Italy's adoption of the OECD's definition of a
"permanent establishment" now makes the recourse to an agency
agreement less risky from a tax point of view.
Apart from tax considerations, the
principal problem presented by an agency arrangement is that an agent acquires
certain rights of an employee. For example, an agent is entitled to receive
compensation if an agency contract made for an indefinite duration is
terminated by the principal. Moreover, the relationship between principal and
agent is governed by collective bargaining agreements entered into between
representatives of the agent's unions and the principal's associations.
A foreign principal who does not have
any place of business or address in Italy may, and generally will, enroll its
Italian agent with ENASARCO a public agency charged with the administration of
social security benefits for agents. As a condition for enrollment, the
principal must sign a statement in which he agrees to abide by the provisions
regulating ENASARCO enrollment and contributions, as well as applicable
collective agreements. Social security contributions amount to eight percent
(four percent from principal; four percent from agent) on all commissions or on
other amounts. The principal must withhold the agent's share of contributions
from amounts plaid to him and must also make contributions to ENASARCO for the
severance indemnity that is payable to the agent upon termination. Italy has
implemented the EU directive (18.12.1986) on Agency agreements.
d) Joint Venture Agreements -
unincorporated joint ventures as such are not specifically
regulated under Italian law. The form of
cooperation in Italian law that come close to this common law concept is that
of the Temporary Association of Businesses ("Associazione temporanea
d'Imprese") - a contractual understanding foreseen specifically for joint
offers in public tender bids. The silent partnership ("Associazione in
participazione") outlined elsewhere above is sometimes also compared to
the anglo-saxon joint venture. The European GEIE has been implemented in
Italian law but there is no national equivalent. Incorporated consortiums
("Consorzio") are foreseen by the civil code and are used where
companies need to form an organisation to co-ordinate their activities in a
more lasting alliance. There is also an unincorporated version which has no
validity vis-a-vis third parties.