Italy: Tax relief measures, intended to encourage investments

Legislative decree in Italy

A legislative decree, intended to encourage foreign investments in Italy, includes provisions that allow companies with international operations to enter into a five-year binding agreement with the Italian tax administration with respect to the following cross-border issues: (1) transfer pricing; (2) definition of values for inbound and outbound transfer or residence; (3) existence of a permanent establishment and attribution of profits; (4) domestic and tax treaty-related taxation of cross-border payments of interest, dividends, and royalties; and (5) in some circumstances, the definition of arm’s length value for the purpose of “black list” expenses and costs.

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The new measures in legislative decree n. 147 (published in the official gazette on 22 September 2015) do not reflect BEPS-inspired action—that is, pursuant to the OECD’s base erosion and profit shifting (BEPS) project.

In addition to the five-year binding agreement rules, the legislative decree also provides for the following:

  • Rulings for substantial investments
  • Taxation of “black listed” dividends (amended rules)
  • Broader interest expense disallowance
  • “Black list” expense, scrutinized only above arm’s length value
  • No arm’s length rule for domestic transactions
  • No automatic assessment based on value declared or assessed for registration tax purposes
  • Extended tax consolidation rules
  • Profit attribution to Italian permanent establishments
  • Simplified CFC rules
  • Broader entertainment expenses allowance
  • New “white list”
  • Outbound transfer of tax residence
  • Inbound transfer of ax residence
  • Losses on receivables clarified
  • Foreign branch exemption introduced
  • Foreign tax credit expanded
  • Special regime for certain immigrant workers

A “statement of practice” will be issued by the Italian revenue agency within 90 days (i.e., by 5 January 2015) setting out rules for implementation of the legislative decree and establishing the effective date for the new measures.

 

Read a September 2015 report [PDF 250 KB] prepared by the KPMG member firm in Italy: Implementation decree on growth and internationalization of companies

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