ITALY Law and Practice Contributed by: Giuliano Foglia, Foglia & Partners
5.3 Blacklists and Non-Cooperative Jurisdictions
Controlled Foreign Company Foreign-controlled entities are subject to the CFC leg - islation if: • are considered as benefiting from a privileged tax regime according to the criteria of Article 47-bis of the ITC; • more than 1/3 of their income consists of passive income (ie, interest, dividends, royalties, capital gains, income from financial leasing, insurance, banking and other financial activities, sale of goods and provision of low-value services to related par - ties). In case CFC legislation applies, income generated by the foreign-controlled entities is attributed to the Italian controlling entity/individual in proportion to its share in the profits and taxed at its average tax rate (in any case, not lower than 24%). Black-List Costs Article 110 (9-bis – 9-quinquies) of the ITC provides that costs and expenses arising from transactions, effectively executed, with entities and professionals located in jurisdictions non-cooperative for tax pur - poses can be deducted up to their market value. The amount exceeding the market value may be deduct - ible, provided the taxpayer can prove it has an actual economic interest in the transactions. Countries and territories considered as non-cooper - ative for tax purposes are those jurisdictions listed in Annex I to the EU list of non-cooperative jurisdictions for tax purposes, adopted by conclusions of the EU Council. 5.4 Reporting Obligations and Disclosure Regimes The Italian tax law imposes specific reporting obliga - tions to prevent tax fraud and evasion on both taxpay - ers and financial intermediaries. RW Form Pursuant to Article 4 of Legislative Decree No 167/1990, individuals, non-commercial entities and non-commercial partnerships resident in Italy for tax purposes must report, in the RW Form of their income tax return, real estate assets and rights and financial
The Italian tax system provides several lists of non- cooperative/high-risk jurisdictions used in the applica - tion of specific anti-abuse regimes. Tax Residence for Individuals Pursuant to Article 2 (2-bis) of the ITC, Italian citizens moving their tax residence to the countries included in the list of jurisdictions with a privileged tax regime contained in the Ministerial Decree of 4 May 1999 are considered, by rebuttable presumption, still resident in Italy, subject to all the tax obligations of resident persons. Foreign-Sourced Dividends and Capital Gains Article 47-bis of the ITC sets out the criteria for qualify - ing a foreign company as a resident of a privileged tax jurisdiction. In particular: • foreign-controlled entities are considered to benefit from a privileged tax regime if they are subject to an effective tax rate 50% lower than the one appli - cable had the entity been resident in Italy. A simpli - fied test, requiring the assessment of an effective taxation lower than 15%, could apply in case the financial statements of the controlled entities are certified by professional subjects and those certifi - cations are used by the auditors of the controlling company to certify its own financial statements; or • foreign non-controlled entities are considered to benefit from a privileged tax regime if the nominal tax rate is 50% lower than the one applicable in Italy. In any case, entities that are resident in EU/EEA States cannot be considered as benefitting from a privileged tax regime. The provisions of Article 47-bis of the ITC affect, in particular, the Italian tax regime applicable to divi - dends distributed by and capital gains realised from the sale of participation in entities benefitting from a privileged tax regime. In such a case, both dividends and capital gains are included in the taxable basis and taxed at a 24% rate, rather than benefiting from dividend/participation exemption regimes.
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