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06 July 2007
By issuing Circular Letter 6/2007 on June 14 2007 the tax authorities revised their position on the early repayment of medium and long-term loans (ie, loans with a term of over 18 months).
Decree 601/1973 established that ordinary transfer taxes (ie, registration, mortgage and Land Registry taxes) are not levied on bank loans with a term of over 18 months.(1) Rather, a substitute tax of 0.25% of the value of the loan applies.
Among other requirements, this favourable regime applies only if (i) the lender meets the definition of a 'bank' under Italian banking law, and (ii) contractual arrangements do not allow for the settlement of the loan for any reason within a minimum 18-month period. Doubts had previously arisen as to whether the substitute tax regime also applied if a borrower wished to repay the loan before the end of the term, provided that the loan agreement included a clause permitting it to do so.
Initially, the tax authorities ruled that the favourable regime applied regardless of whether the borrower had a unilateral right to repay the loan before the 18-month term expired. In May 2005 the Supreme Court stated that such a provision was incompatible with the scope of the substitute tax regime;(2) the tax authorities followed the court's interpretation and rejected the early payment approach in Circular Letter 6/2006.
However, the tax authorities have returned to their initial position by issuing Circular Letter 6/2007, which states that the early repayment of medium and long-term loans at the borrower's initiative does not make the loan ineligible for the substitute tax regime. This position has been favourably received by most practitioners, as most existing bank loan agreements provide for such an arrangement (ie, by giving the borrower the unilateral right to repay the loan before the 18-month term expires).
For further information on this topic please contact Marco Abramo Lanza, Franco Pozzi, Enrico Colombo and Simona Zangrandi at Studio Legale Tributario Biscozzi Nobili by telephone (+39 02 763 6931) or by fax (+39 02 780 146) or by email (firstname.lastname@example.org or email@example.com or firstname.lastname@example.org or email@example.com).
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