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04 May 2018
Identifying blacklisted companies
Tax on dividends
The Budget Law 2018 introduced, among other things, amendments to the tax regime concerning dividends from non-resident companies located in low-tax jurisdictions (ie, blacklisted companies).
The criteria to identify a blacklisted company is the same as that for the controlled foreign companies (CFC) regime.(1) Therefore, 'blacklisted companies' are entities resident or located in jurisdictions other than EU or European Economic Area (EEA) member states, whose ordinary or special tax regime grants a nominal tax rate that is 50% lower than the Italian one.
For dividend taxation purposes, a foreign entity will not be considered a blacklisted company if the resident taxpayer can demonstrate that it is not a fake structure aimed at obtaining an unjustified tax benefit(2) (the so-called 'second safe-harbour CFC rule').(3)
Before the above amendments were made, dividends paid by blacklisted entities were fully taxable in the hands of the Italian receiving company unless:
Under the described scenario, the Budget Law 2018 introduced a new rule whereby 50% of the amount of dividends distributed by tax havens are excluded from the IRES (company income tax) taxable base of an Italian receiving company if it is demonstrated that the foreign subsidiary carries out an actual business activity in the market in which it is established(5) (the so-called 'first safe-harbour CFC rule').(6)
Further, as of January 1 2018 foreign source dividends received by Italian companies (as well as those received by non-resident companies subject to the CFC regulations) will be taxed as follows:
The Budget Law 2018 also established some relevant transitional provisions. In particular, dividends accrued in previous fiscal years, when blacklisted companies did not qualify as such (according to the different CFC criteria, as indicated in the following chart), are subject to the ordinary tax regime described under the second bullet point above.
The different blacklisted criteria provided for CFC purposes are as follows.
Until December 31 2014
From January 1 2015 until December 31 2015
From January 1 2016
Criteria to identify blacklisted entities
In addition, dividend distribution is presumed to be formed by profits realised when a foreign company does not qualify as a low-tax jurisdiction.
For further information on this topic please contact Franco Pozzi or Simona Zangrandi at Studio Legale Tributario Biscozzi Nobili by telephone (+39 02 763 6931) or email (firstname.lastname@example.org or email@example.com). The Studio Legale Tributario Biscozzi Nobili website can be accessed at www.slta.it.
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