Tag Archive: Italy

1. Italy Enhances Investment Fund Tax Regime

   25 March 2024 10:42 am Leave a Comment

   Italy Enhances Investment Fund Tax Regime – Introduction

   The Finance Commission’s recent query session brought crucial clarifications from the Italian Ministry of Economy and Finance, marking a pivotal moment for investment funds across the European Union (EU) and the European Economic Area (EEA).

   With the official response numbered 5-02060 on February 27, 2024, Italy has clearly defined the application scope of its new dividend exemption regime, shedding light on a subject that had hitherto remained in the shadows.

   The Genesis of the Amendment

   Historically, dividends disbursed by Italian entities to non-Italian investment funds were subject to a withholding tax under Article 27(3) of the Presidential Decree no. 600 of 1973, typically pegged at 26%.

   However, the landscape underwent a transformative change with the Budget Law 2021 (Law no. 178 of December 30, 2020), extending the exemption previously reserved for Italian investment entities to encompass EU and EEA UCITS and alternative funds managed under supervision.

   Uncertainty

   This amendment sparked a wave of uncertainty among professionals regarding its effective date and applicability concerning the formation of profits, the establishment of funds, among other temporal factors.

   In a decisive move, the Italian Ministry confirmed the exemption regime’s effectiveness from January 1, 2021, irrespective of profit accrual periods, distribution resolutions, or the fund’s establishment date.

   What Does This Mean for EU and EEA Investment Funds?

   This clarity not only simplifies the tax landscape for qualified UCITS and alternative investment funds but also underscores Italy’s commitment to fostering a favorable investment environment within the EU and EEA regions.

   The exemption regime’s retroactive application from 2021 presents a significant boon, potentially impacting the strategic planning and tax liability of investment funds operating or considering operations within Italy.

   Italy Enhances Investment Fund Tax Regime – Conclusion

   Italy’s proactive stance in refining its tax regime for EU and EEA investment funds reflects a broader strategy to integrate more seamlessly into the European financial ecosystem.

   By removing previously ambiguous temporal barriers, Italy encourages a more fluid and advantageous investment flow, reinforcing its position as an attractive destination for international funds.

   Final thoughts

   If you have any thoughts or queries about this article called ‘Italy Enhances Investment Fund Tax Regime,’ or Italian tax matters in general, then please get in touch.

2. Italy and Reshoring of Economic Activities

   21 November 2023 6:50 am Leave a Comment

   Italy and Reshoring of Economic Activities – Introduction

   On 16 October 2023, the Council of Ministers preliminarily approved a legislative decree proposing significant reforms to international taxation in Italy.

   This decree is currently undergoing review by relevant parliamentary committees before it officially becomes law.

   An interesting proposal is a relief for the so-called ‘reshoring’ of economic activities.

   Let’s look at this in some more detail.

   Implementation and Timeline

   Expected to come into force after final approval of the legislative decree (anticipated by December 31, 2023), the ‘reshoring’ provisions aim to rejuvenate Italy’s economic landscape.

   However, their actual enactment hinges on authorization from the European Commission.

   Reshoring of Economic Activities

   Article 6 of the draft legislative decree outlines a specialized tax incentive designed to incentivize the transfer of ‘economic activities’ to Italy.

   Unlike similar measures in other nations, Italy’s decree extends beyond specific sectors, aiming to encompass ‘economic activities’ regardless of industry.

   Under the proposed measure, income derived from business activities transferred from non-EU or non-EEA countries to Italy will enjoy a 50% exemption from income tax and IRAP (Regional Production Tax) for a designated period:

   The relief spans the tax period during the transfer and the following five tax periods. However, ‘economic activities’ already conducted in Italy within the preceding 24 months are excluded from eligibility. Interpretive Challenges and Scope The decree poses several questions for stakeholders, primarily concerning its application scope.

   What are economic activities?

   The term ‘economic activities’ casts a wide net, referencing income from business activities conducted in non-EU/EEA countries and relocated to Italy.

   This suggests potential application scenarios, including the relocation of non-EU/EEA companies’ registered offices to Italy.

   Consequential matters?

   Though the draft decree doesn’t explicitly mention the combined application of ‘reshoring’ relief and tax basis adjustment provisions, such as Article 166-bis of the Consolidated Income Tax Law (TUIR), experts opine that these could complement each other.

   This combination might lead to higher depreciation or lower capital gains, further reducing the taxable base.

   Complexities and Considerations

   Determining the application of ‘reshoring’ relief, along with compliance with other provisions like ‘Pillar 2’ and ‘Qualifying Domestic Minimum Top-Up Taxes,’ poses intricate challenges.

   The definition of ‘economic activity’ under European Union law highlights the complexity of identifying eligible activities.

   Moreover, entities already established in Italy undergoing functional changes might potentially qualify for ‘reshoring’ benefits.

   This includes transformations within the value chain, such as a distributor evolving into a manufacturing entity.

   Compliance Requirements and Forfeiture Conditions

   To benefit from the incentive, taxpayers must maintain meticulous accounting records to verify income determination and eligible production values.

   The legislation stipulates forfeiture conditions, triggering the recovery of unpaid taxes in case of activity transfer out of Italy within specific periods following ‘reshoring.’

   Conclusion

   Italy’s proposed tax incentive for ‘reshoring’ economic activities presents opportunities and complexities for businesses.

   The legislation’s interpretation and application nuances warrant thorough understanding, and compliance measures are crucial to harness the benefits while navigating the regulatory landscape effectively.

    

   If you have any queries around Italy and reshoring of economic activities, or Italian tax matters in general then please get in touch. 

    

   The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

3. New capital gains regime for real estate companies proposed in Italian Budget

   16 December 2022 5:10 pm Leave a Comment

   Introduction

   Parliament is currently discussing the draft 2023 Budget Law. Although this is yet to be approved, the draft signals a potential change to the taxation of rela estate companies in Italy. Specifically, the tax treatment of shareholdings in such companies.

   What’s the proposal?

   Article 23 of Presidential Decree no. 917/1986 proposes new provisions regarding the ‘alienation’ of shareholdings in real estate companies by certain persons.

   Specifically, the proposals relate to disposals by:

   • non-resident shareholders;
   • in respect of non-resident “real estate entities and companies”

   In other words, companies and entities that derive their value mainly from real estate situated within the Italian territory.

   It is a provision aimed at taxing capital gains on foreign shareholdings that result, de facto, the transfer of real estate properties located in Italy.

   OECD ‘land rich clause’

   Undoubtedly, the proposal has got its inspiration fromArticle 13, paragraph 3, of the OECD Model Tax Treaty. This is often referred to as the “land rich clause”.

   The proposals could have an immediate impact on cases where the shareholder realising the capital gain:

   • is tax resident in a State not having an in-force tax treaty with Italy; or
   • does not meet the requirements to apply the tax treaty.

   The proposals do not apply to shares listed on a stock exchange.

   Conclusion

   Where there is a tax treaty in force, the change could apply where the tax treaty with the shareholder’s state of residence grants Italy rights of taxation in respect of capital gains on shareholdings in real estate companies.

   In this respect, Italy may tax such capital gains in accordance with provisions set forth by over twenty tax treaties including the land rich clause. It is likely that the number of tax treaties that reflect this position will increase over the coming years.

   If you have any queries about this article on Italy real estate companies, Italian tax matters or capital gains in general then please do not hesitate to contact us.

   The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.