Travel and Tourism: Licensing Issues
Impact of Call Centers on Online Travel Services
This article analyzes the issues that may arise for a hypothetical American online travel business ("US Travel") in conducting phone sales in Italy through its Italian representative office located in Rome. The structure being reviewed will involve listing a telephone number on US Travel’s websites for a local reservation centre, where website users can initiate a booking over the telephone instead of online. Previously, all sales were conducted exclusively through US Travel’s websites with customers making bookings directly online and payments made directly to US Travel’s head office. The specific issue posed is whether or not the addition of a local phone sales capability would require any change to current legal structures.
Italian Representative Office
The first issue to address concerns the status of a representative office in Italy and whether the addition of direct bookings conducted by that office via telephone will require changes to its current structure.
In Italy, a representative office is defined as the maintenance of a fixed place of business solely for the purpose of carrying on activities of a preparatory or auxiliary character for the parent company. Since a designation of representative office is relevant primarily for tax purposes in Italy, the Italian authorities generally apply the OECD definitions concerning permanent establishments (see, art. 5(4) of the OECD Model Convention with respect to taxes on income and on capital, 28 January 2003). As such, a representative office exists principally as a support office and is limited to functions mainly involving gathering and dispensing information, such as market research, general publicity, etc. More generally, these offices are separate local units of an undertaking where only limited and specific activities are conducted without possessing the characteristics of a permanent establishment, which would require the opening of a branch/subsidiary. This definition is also supported by Court rulings, such as Decree 24 November 1987 of the Tribunal of Rome: "opening of a representative office in Italy does not qualify as a branch office as the purpose of the representative office is to collect and provide information only." In sum, representative offices are not intended to conduct business activities.
The question therefore arises as to whether the representative office of US Travel will engage in business activities by making hotel bookings over the telephone.
The tourism industry in Italy is regulated by a series of laws, the most relevant for the purposes of this analysis being the Lazio Regional Law n. 10/2000 (L.R. 10/00), concerning travel agencies.
Pursuant to article 3 of L.R. 10/00, "companies that engage in activities involving the production and organisation of travel and lodging or that act as intermediaries for the purchase of such services or both activities, shall be construed as travel agencies." These are activities subject to license, of which the Lazio Region offers two types:
Tour Operators – issued pursuant to art. 3 (a) of L.R. 10/00 for the "production and organisation of travel, lodging and cruises by land, sea and air, for single persons or groups, without the direct sales to the public"; and
Travel Agencies – issued pursuant to art. 3 (b) of L.R. 10/00 for the "intermediation by way of direct sales to the public of travel tickets, lodging and cruises produced and organised by Tour Operators – by land, sea and air, for single persons or groups, including through the total or partial use of IT systems."
Based on the above, two issues must be addressed in relation to the Italian representative office: 1) whether the proposed phone sales fall within the definition of travel agency services requiring a license; and 2) whether the representative office possesses the proper corporate form in Italy to obtain the license.
For the purpose of this analysis, the following is assumed:
the commercial purpose of opening a call centre in Italy is to increase sales, since Italians are hesitant to provide credit card information online and prefer to have direct contact with a sales rep for bookings and payment;
the operators will search room availabilities and provide assistance in identifying the customer’s room, location and price preferences;
the operator will directly make reservations on behalf of the customer and handle payment transactions;
the operator will register the customer in a membership program;
the Italian representative office will receive a commission for bookings.
The activities described above would appear to involve more than just providing preparatory or auxiliary support to sales. In fact, the Italian representative office will be conducting sales directly to the public as an intermediary. As such, this activity should fall within the definition of travel agency services and require a license. Since L.R. 10/00 clearly states that licenses will be issued to companies and a representative office does not have adequate standing, it will be necessary to establish a corporate entity in Italy.
In order to be authorised to operate a travel agency, two basic options are available: 1) incorporate an Italian company or branch and file for an Italian license; or 2) become licensed in another EU country and open an Italian branch of that company in Italy.
The licensing procedure in L.R. 10/00 distinguishes between EU and non-EU companies. The establishment of a branch of an agency whose main office is located in an EU Member State is subject to notification to the competent provincial authorities, containing details of the license granted to the main office, as well as the requirements of art. 7 (1)(e) and (f) – concerning the trade name of the business - and the documentation listed in art. 9(2)(c) – concerning zoning of the branch premises. Therefore, due to the EU’s free establishment rules, it would be possible to obtain a license in another EU country and then proceed to open a branch in Italy without necessarily going through the entire Italian licensing procedure. Should an Italian license be sought, the procedure is somewhat more extensive, including a series of certificates concerning the company and its management, as well as a minimum bank guarantee of € 100.000.
In any event, in order to convert the Italian representative office into a branch, it will be necessary to follow the requirements set out in article 2506 of the Italian Civil Code. The following legal and administrative requirements must be met:
A resolution by the Board of Directors or by the person who has the power to bind the parent company and authorize the opening of an Italian branch. The resolution must indicate the place where the mother company intends to open the Italian branch and appoint a local representative. The resolution must be notarized and apostilled (if outside the EU) by a public notary or by the Italian Consular authorities of the place where the parent company is located;
A copy of the parent company's Articles of Incorporation and By-laws, from which it is possible to verify that the Board of Directors or the legal representative have the appropriate powers to authorize the opening of a branch in Italy;
Filing and registration of the branch with the Commercial Section of the Court ("Registro delle Imprese") of the place where the branch is set up;
Registration with the competent Chamber of Commerce of the place where the branch is located;
If the branch is to conduct sales activities in Italy, the local Chamber of Commerce will also require that it is registered on a special record of companies which carry out trading activities ("Registro Esercizi Commerciali"). In this case the Italian legal representative must comply with certain requirements that allow him/her to conduct sales of the company's products;
The legal representative should declare the opening of a branch to the Italian Tax Authorities and request a fiscal number (V.A.T. or Fiscal Code number) for payment of taxes in Italy.
If the Italian branch intends to hire Italian resident employees, the legal representative must file all necessary documentation to place the employees on the branch’s pay roll.
The entire process is relatively simple. First, all the requested documentation is collected. Those documents originally in English are translated into Italian and the translation is authenticated before a public officer. The requested documents are then filed and registered with the above mentioned Italian Authorities. This procedure will take approximately fifteen days. Once the documentation has been filed with the Register of Businesses where the branch is located and a legal representative is appointed, the branch can begin operations in Italy.
Engaging in travel agency activities without a license will result in administrative sanctions. Specifically, under art. 26 of L.R. 10/00, anyone who provides travel services, whether on a continuous or occasional basis, even without making a profit, will be subject to fines ranging from € 2.500 to € 8.300, as well as the immediate cessation of the business and physical closure of the premises. Criminal sanctions may also be applicable.
Other Issues – Data Privacy, Distance Contracts, Labour
Note should be made of several other legal issues that may arise concerning the phone sales. In particular, data privacy rules will come into play since the operators will be collecting personal data on the customers, both for the conclusion of bookings and for marketing purposes, i.e., membership programs. It will be necessary to notify the Italian Privacy Authority, prior to beginning the service, that personal data will be collected, comply with the rules concerning consent for data treatment, as well as comply with certain minimum security measures relative to hardware and software utilised in Italy.
Certain provisions of Italian law on distance contracts, which implemented EU Directive 97/7 on the same issue, may also apply. Although the Italian implementing legislation specifically exempts contracts for travel and lodging from the general information requirements concerning the contract and the right of withdrawal for the consumer (see art. 7(b) of Legislative Decree n. 185/99), other provisions concerning performance of the contract and reimbursement for failed performance would be applicable.
In addition, depending on the structure utilised to operate the phone banks, certain Italian labour issues may also come into play, such as collective bargaining agreements for call centre employees (the current agreement was signed in March 2004 with the Assocallcenter Union, but would only be relevant if the call centre were outsourced), as well as the labour reforms providing flexibility for call centre employees.