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29 March 2019
Italian CFC regulation
New definition of 'control'
With Legislative Decree 142 of 29 November 2018, the government transcribed the EU Anti-tax Avoidance Directive (2016/1164/EC) into Italian law. The decree's new controlled foreign corporation (CFC) rules are applicable from the fiscal year following that in progress on 31 December 2018 (ie, from 2019 for calendar-year taxpayers).
Under the new Article 167 of the Tax Code, a foreign jurisdiction is deemed to be tax privileged if the following conditions are met:
In light of the above, the recent tax rules introduced by Legislative Decree 142 have removed the distinction between a tax haven CFC and a white list CFC. The decree has therefore unified the terms under which the CFC rules apply if the abovementioned conditions are jointly met independently from the country in which the company is resident for tax purposes.
Legislative Decree 142 extends the concept of 'control' to include:
An exemption from the new CFC rules is available to controlling companies that can prove that an actual business is carried out by the foreign entity in another jurisdiction by way of local personnel, equipment, other assets and premises, also by means of an advance ruling from the Tax Authority. Thus, the advance ruling is optional and the exemption can be demonstrated by the taxpayer during a tax assessment.
Where these safe-harbour conditions are duly met, the subsequent dividend distributed by a CFC will benefit from a 50% exemption in addition to a foreign tax credit computed on the remaining 50% taxable dividend.
For further information on this topic please contact Franco Pozzi or Fabrizia Orsillo 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.
(1) In order for the sale of goods or services to be deemed to have little or no added economic value, reference must be made to the Ministerial Decree of 14 May 2018 concerning the implementation of the base erosion and profit shifting transfer pricing principles in Italy. Under the decree, services are deemed to have 'a low added value' when they:
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