November – International Tax Focus

Foreign profits paid out by a European Economic Interest Grouping are fully taxable

Participation exemption on capital gains arising from the sale of shareholdings in Italian companies

Investment Management Exemption Draft Ministerial Decree

Global minimum tax implementation draft has been published

Amendments to the rules for identifying Italian tax resident individuals

Amendments to the rules for identifying Italian tax resident entities

Amendments to the in-bound workers regime

New Italian tax relief for the 0n-shoring of business activities

Draft 2024 Budget Law envisages increase in IVIE and IVAFE rates

Italian Tax Authority Circular Letter clarifies matters on the tax regime on crypto-assets

Tax credit for taxes paid abroad by frontier workers

Publication of the EU Directive 2023/2226 in the Official Journal of the European Union

EU list of non-cooperative jurisdictions for tax purposes amended

Foreign profits paid out by a European Economic Interest Grouping are fully taxable

In its decision no. 28154 of October 6, 2023, the Italian Supreme Court affirmed that profits distributed by a French-regulated EEIG (European Economic Interest Grouping) to an Italian participating company are fully taxable: the corporate income tax exclusion (of 95 percent) provided for in Art. 89(3) of the TUIR is not applicable.

The Court ruled out the applicability of the Parent-Subsidiary directive in the case at hand, in which the profits were remitted to the beneficiary company by an EEIG: this is due to the fact that the entity does not fall within the subjective scope of the directive, since EEIG’s are not listed as one of the legal forms in Annex I of Directive 2011/96/EU.

Participation exemption on capital gains arising from the sale of shareholdings in Italian companies

The draft 2024 Budget Law extends the participation exemption regime (upon compliance with the requirements of Article 87 of the TUIR) to capital gains realized by foreign companies from the sale of equity investments in Italian companies.

However, the extension is limited to:

capital gains arising from the disposal of non-portfolio shareholdings;

capital gains realized by companies resident in countries of the European Union and the European Economic Area.

The provisions of Tax Treaties that reserve the exclusive right to tax capital gains to the Residence State remain unaffected.

Investment Management Exemption Draft Ministerial Decree

The draft Ministerial Decree implementing the Italian
investment management exemption has been issued for public consultation.

This exemption, amongst others, regards foreign funds; the draft decree states that the following are considered independent:

EU collective investment undertakings that comply with Directive 2009/65/EC (UCITS Directive) or whose manager is subject to forms of supervision under Directive 2011/61/EU (AIFMD);

non-EU CIVs established in white-listed countries whose assets are collected from a plurality of investors and subject to a supervisory regime assimilated to that of European funds; and

institutions whose exclusive or main purpose is to carry out the business of investing the capital raised from third parties.

The Italian Tax Authority’s draft Implementing Measure also sets out rules for assessing the asset manager’s remuneration, distinguishing between investment management services and services that are instrumental to investment management.

Global minimum tax implementation draft has been published

In the context of a broad international tax reform, the Italian government has issued the draft of Legislative Decree containing, among the others, the implementing provisions of the EU Directive 2022/2523 on the global minimum tax.

In order to ensure a minimum level of taxation for certain multinational or domestic groups of companies (according to the Pillar Two rules), certain new levies will be introduced as follows:

the IIR, which will be due by Italian resident parent entities with respect to group entities that are subject to low taxation;

the UTPR, payable by one or more entities of a multinational group located in Italy with respect to low taxed constituent entities of the group located in other jurisdiction. This rule applies as a back-stop rule where the IIR has not been levied (or has been levied only partly) in other jurisdictions;

the QDMTT, a domestic levy calculated with respect to low-taxed entities of a multinational or domestic group that are located in Italy for Pillar Two purposes.

Amendments to the rules for identifying Italian tax resident individuals

The draft of the Legislative Decree of the proposed Italian tax reform also envisages amendments to the criteria for establishing the Italian tax residence of individuals. In particular, such new criteria should be:

  • the domicile (being “the place where the individual’s personal and family are primarily located”);
  • the residence; or
  • the presence in the territory of Italy.

An individual is considered to be resident in Italy if at least one of these criteria is met for majority of the tax period (including also portions of days).

The new provisions shall be applicable from 1 January 2024.

Amendments to the rules for identifying Italian tax resident entities

The envisaged Italian tax reform also provides for amendments to the rules to ascertain the tax residence of companies (Art. 73(3) of the TUIR).

The current rule provides that companies are considered resident if they have their legal seat, place of administration or the place where the main object of the entity activity is carried out in Italy for the majority of the tax period.

The new rules retain only the criterion of registered office, eliminating place of administration and the main activity object test while introducing two new requirements:

the “place of effective management”, which is the place where the company’s strategic decisions are made;

the “principal place of ordinary management,” i.e. the place where acts of day-to-day management are carried out.

Amendments to the in-bound workers regime

Also the so-called in-bound workers regime is likely to be amended through the draft Legislative Decree on the Italian tax reform. As from 2024, the regime will only concern workers who are highly qualified and specialized.

According to the draft:

  • the tax relief for teachers and researchers (Art. 44 of Law Decree no. 78/2010) should not change;
  • the general in-bound workers regime will be capped to a 600,000.00 euros limit;
  • the benefit will be reduced from a 70% to a 50% reduction of the relevant income;
  • to be eligible for the new regime, the relevant individuals must have been resident abroad for the three tax fiscal years prior to moving to Italy (instead of the two fiscal years that are currently required) with a commitment to reside in Italy for at least five years (instead of the two that are currently required);
  • the activity upon arriving in Italy must be carried out under a “new” employment contract with a subject that differs from the one with which the worker was employed with abroad (and/or any entities belonging to the same group) before the transfer to Italy.

New Italian tax relief for the 0n-shoring of business activities

The draft Legislative Decree on the upcoming Italian tax reform introduces a new regime for business activities and self-employment activities transferring their operations to Italy (reshoring).

The rule stipulates that 50% of the relevant business income, self-employment income related to activities performed in a non-EU country and transferred to Italy may benefit from an exemption from Italian IRES (corporate income tax) as well as IRAP. This benefit may be enjoyed in the fiscal year in which the transfer occurs and for the the following five fiscal years.The rule is subject to approval by the European Commission.

Draft 2024 Budget Law envisages increase in IVIE and IVAFE rates

The draft of the 2024 Budget Law provides for an increase in the rates of property taxes on foreign assets (IVIE and IVAFE): as of 2024, IVIE increases from the current 0.76% to 1.06%; IVAFE increases from the current 0.2% to 0.4%, but only for financial products held in blacklisted countries, being the countries listed in the Ministerial Decree 4 May 1999 (from which, as of 2024, Switzerland will be removed).

Italian Tax Authority Circular Letter clarifies matters on the tax regime on crypto-assets

With the Circular Letter no. 30 of 27 October 2023, the Italian Tax Authorities clarify the tax regime of crypto-assets that was introduced by Law no. 197/2022, which is effective starting from 2023.

In particular, the circular examines:

  • the tax regime on such crypto-assets until 2022 and as from 2023 for income tax purposes;
  • the VAT regime applicable to crypto-assets;
  • the territoriality criteria of crypto-assets for income tax and inheritance and gift tax purposes;
  • the voluntary disclosure procedure for previously undeclared assets;
  • the international framework on the subject (MiCA regulation, DAC 8 Directive and Crypto-Asset Reporting Framework, CARF).

Tax credit for taxes paid abroad by frontier workers

According to the decision no. 944 of 10 October 2023 of Tax Court of Justice of Emilia Romagna, taxes paid abroad are fully deductible against Italian income tax liabilities in the hands of frontier workers. In similar cases, in fact, the limitation of Art. 165(10) of the TUIR for foreign sourced income that are only partially taxable in Italy shall not apply.

This decision goes against the position taken by the Italian Tax Authorities which claim that the foreign tax credit must be reduced given the existence of an exempt income (7,500 euros, or 10,000 euros from 2024) that reduces the taxable income taxed in Italy.

Publication of the EU Directive 2023/2226 in the Official Journal of the European Union

On 24 October 2023, the EU Directive 2023/2226 (DAC 8) on the automatic exchange of information for tax purposes between Member States was published in the Official Journal of the European Union.

The directive:

  • extends the automatic exchange of information, as from 2026, to crypto-assets;
  • provides for the automatic exchange of information, as of 2026, of rulings filed by individuals, if the transaction under scrutiny in the ruling has a value higher than 1.5 million euros or if the ruling concerns the person’s tax residence;
  • extends the automatic exchange of information, as of 2026, to dividends collected on certain accounts.

Finally, rules on the disclosure of potentially aggressive international transactions are amended to safeguard the attorney-client privilege.

EU list of non-cooperative jurisdictions for tax purposes amended

On 17 October 2023, the Council of the European Union updated the EU black-list of non-cooperative jurisdictions for tax purposes by adding Antigua and Barbuda, Belize and the Seychelles and removing the British Virgin Islands, Costa Rica and the Marshall Islands.

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Fazzini Holzmiller & Partners

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