BEPS: Italy, an update

Written on 3 Nov 2015

Following the presentation in Autumn 2015 of the BEPS measures package by the OECD, Italy continues to confirm its intention to introduce new tax rules by way of implementation of internationally shared ideas, bringing its own legislation into line.

The recovery of a tax base improperly transferred abroad is now an urgent necessity given the size and the speed of growth of the phenomenon which is even more evident within the ambit of the digital economy, but is also the solution that the current Italian government wants to adopt in order to finance the reduction of some internal taxes to assist in reviving the domestic economy.

A recent decree, approved in September 2015 and referred to as the ” Internationalization Decree”, touched on and started to address the issues covered by the BEPS project as well as more general aspects of international taxation.

Set out below are some of the issues considered in the Internationalization Decree, with brief comments:

  • Ruling of international standard. A new procedure has been introduced – in principle – that is compliant with the international model for the signing of preliminary agreements with the Tax Authorities (the change will be accompanied by an appropriate implementing decree which is yet to be issued);
  • “Interpello” rulings for new investments in Italy made by foreign entities. On the basis of indications that will be contained in a special implementing decree, the Tax Authorities, further to specific requests from taxpayers, will issue their opinion/ruling on investments in Italy;
  • “Interpello” CFC rulings. Changes to the rules regarding specific requests for ruling on CFC issues are envisaged;
  • Taxation in Italy of non-resident entities (functionally separate entity rules);- Branch exemption. Introduction, upon certain conditions, of the exemption option for the income produced by the foreign branches of Italian companies;
  • Exit tax. Exemption conditions for the transfer of the registered office from Italy abroad and rules for the determination of the normal value of assets transferred to Italy from abroad;
  • Black list countries. Changes have been introduced in rules for the deductibility of costs and the taxation of dividends from countries with privileged taxation regimes;
  • New and updated list of Black list countries will be issued by means of an appropriate implementing decree;
  • National fiscal consolidation. The possibility of consolidation of “sister” companies and permanent establishments resident in Italy has been extended.
  • A further draft decree is currently under consideration (that should be approved by the end of 2015) that would introduce a “digital tax” on income produced in Italy, through a withholding (possibly 25%) applied by banks on payments. Businesses that have already created a permanent establishment in Italy would not be subject to such withholding.
  • On other fronts Italy has confirmed the introduction from 2015 of the income incentive known internationally as the Patent box. In August 2015 the implementing decree was approved containing some indications for the calculation of the Italian version of this benefit and in September 2015 approval was received from the Italian “Corte dei Conti”.

The most significant new regulations are still to come and it is certain that they will have a significant impact on the structure of multinationals. But what is the timing and the manner in which these developments will be introduced? Much curiosity has arisen as to how the main themes from the BEPS project will be developed at the national level, such as: content of the “country by country reporting”, which will allow all the Tax Authorities to assess the international organization of multinationals; the changes to the layout of bilateral treaties, to avoid “treaty shopping” for double exemptions and avoid double taxation; content sharing and international sharing of tax rulings; the automatic exchange of tax rulings; the revision of the guidelines for the application of the rules on transfer pricing; the evolution of the definition of “permanent establishment”; the strengthening of the CFC rules; the application of limits to tax benefits that generate tax competition, in particular in the field of intellectual property.

Some multinationals have already started – within Italy – a process of adapting their corporate and tax structures, but we are only at the beginning. In any case, for multinational groups, it will be essential to monitor and promptly evaluate the regulatory changes as they are introduced.

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