On 22 August 2016, the Italian Government published in the Official Gazette, Ministerial Decree of 9 August 2016 (the Decree), amending the list of jurisdictions that allow an adequate exchange of information with Italy (the so called “white list”). The Decree broadens the white list to include 51 new countries and reserves the right to remove countries that are not compliant with the exchange of information obligation. The new provision allows taxpayers resident in the white list countries and investing in the Italian market, access to a broad range of tax benefits, previously prohibited. In addition, some benefits are also provided for Italian taxpayers dealing with the newly included countries.
Following various bilateral and multilateral instruments signed by Italy over the last several years, the Italian Ministry of Economy and Finance amended the list of countries complying with the exchange of information requirements originally provided by Art. 1 of the Ministerial Decree of 4 September 1996.
In particular, the amended list includes 51 new countries1 including Bermuda, the Cayman Islands, Hong Kong, Liechtenstein, Saudi Arabia, and Switzerland.
The Decree also introduces a new provision whereby the Ministry of Finance reserves the right to test the actual compliance of each country included in the white list with the exchange of information obligation and to remove from the list the uncooperative jurisdictions, in the case of reiterated violations. In this regard, it is worth noting that, under Italian law,2 the white list has to be updated every six months.
The increase in the number of white listed countries implies favorable consequences from a tax perspective. Indeed, both foreign investors residing in countries previously considered uncooperative and, in certain circumstances, Italian resident taxpayers dealing with entities previously considered “black listed,” are now allowed access to a wider range of tax benefits.
Among others, the most significant tax benefits granted to non-Italian taxpayers resident in a white listed jurisdiction are the following:
- The tax basis of assets and liabilities of business enterprises transferring their tax residence to Italy is determined according to their fair market value
- Interest on bonds paid by Italian companies is exempted, under certain conditions,3 from the payment of a 26% substitute tax
- Interest arising from deposits and accounts other than bank and postal accounts (e.g., zero balance cash pooling) perpetual rents, guarantees and repos are exempted from the Italian 26% withholding tax
- Interest and other proceeds paid on mid-to-long term loans granted by white listed institutional investors to Italian enterprises are exempt from the Italian 26% withholding tax if allowed from a regulatory perspective
- Capital gains on the sale of “non-qualifying”4 shareholdings of Italian companies are not taxed in Italy
- Income from participation in Italian collective investment vehicles is exempt from the Italian domestic 26% withholding tax
- Income derived from participation in Italian real estate funds and SICAF is exempt from the Italian domestic 26% withholding tax if received by foreign investment funds and pension funds established in a white list country
The extended white list also allows Italian taxpayers dealing with the new included countries to benefit from certain domestic tax provisions, as follows:
- Equity contributions trigger a deduction under the Italian notional interest deduction regime only if made by white list resident entities
- Bad debt losses are deductible for Italian taxpayers in the case of nonresident debtors subject to bankruptcy procedures only if the debtor is resident in a white list country
- Reduced substitutive tax of 12.5%, applicable to Italian treasury bonds, also applies to foreign treasury bonds if issued by white list countries
The inclusion of Liechtenstein in the white list as a result of the Decree, in combination with this country being part of the European Economic Area, will trigger the following effects, among the others, for taxpayers resident in Liechtenstein:
- Preferential withholding tax (1.375%) on dividends paid by Italian companies
- Option for the election of the Italian horizontal tax consolidation for companies resident in Lichtenstein controlling Italian companies
- Preferential exit tax regime for Italian companies moving their residence to Lichtenstein
The Decree should enter into force starting from the 15th day following the date on which it was published in the Official Gazette (i.e., 6 September 2016). However, further clarifications from the tax authorities are expected in this regard.
1. The white list now includes the following jurisdictions: Albania, Alderney, Algeria, Anguilla, Argentina, Armenia, Aruba, Australia, Austria, Azerbaĳan, Bangladesh, Belarus, Belgium, Belize, Bermuda, Bosnia and Herzegovina, Brazil, British Virgin Islands, Bulgaria, Cameroon, Canada, Cayman Islands, China, Colombia, Congo Republic, Cook Islands, Costa Rica, Croatia, Curacao, Cyprus, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Ethiopia, Faroe Islands, Finland, France, Georgia, Germany, Ghana, Gibraltar, Greece, Greenland, Guernsey, Herm, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Ivory Coast, Japan, Jersey, Jordan, Kazakhstan, Kirghizstan, Kuwait, Latvia, Lebanon, Liechtenstein, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mauritius, Mexico, Moldova, Montenegro, Montserrat, Morocco, Mozambique, Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russia, San Marino, Saudi Arabia, Senegal, Serbia, Seychelles, Singapore, Slovak Republic, Slovenia, South Africa, South Korea, Spain, Sri Lanka, St. Maarten, Sweden, Switzerland, Syria, Taiwan, Tajikistan, Tanzania, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Turks and Caicos Islands, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Venezuela, Vietnam and Zambia.
2. See EY Global Tax Alert, Italy issues major changes to international tax rules, dated 28 September 2015.
3. The exemption applies in the following circumstances:
- interest on bonds, securities similar to bonds and commercial papers issued by banks and listed companies;
- interest on listed bonds, listed securities similar to bonds and listed commercial papers, issued by non-listed companies;
- interest on non-listed bonds, non-listed securities similar to bonds and non-listed commercial papers, issued by non-listed companies held by one or more “qualified investors” under article 100 of Legislative Decree No. 58 of 24 February 1998 (Italian Consolidated Financial Act).
4. The alienation of shares is defined “qualified” if the shares sold represent more than the 2% of the voting rights in the shareholders’ meeting or more than 5% of the capital if the shares are negotiated in a regulated market. If the shares are not traded in a regulated market, the mentioned percentage is increased to 20% of voting rights in the shareholders’ meeting or to 25% of the capital.
EYG no. 02619-161Gbl