By Nicola Saccardo, Maisto e Associati
This article sets out to briefly highlight recent and forthcoming developments in Italy relating to the taxation of private clients and private wealth.
The Ministerial Decree of 9 August 2016, published in the Official Gazette of 22 August 2016, provides for the new white list – that is, the new list of states exchanging information with Italy, including several jurisdictions that have recently entered into exchange of information treaties with the country. The new white list includes, among others, Jersey, Guernsey, Bermuda, Hong Kong, Cayman Islands, BVI, Liechtenstein and Switzerland (none of which appeared in the previous white list). The Minister of Finance reserved the right to repeal states from the white list in the event of failures to effectively exchange information (it is worth mentioning that Italy’s tax authorities recently invoked treaty provisions to launch group requests of information).
Recent additions to the white list are beneficial for foreign jurisdictions. Indeed, investors who are resident or established in white-listed jurisdictions may, subject to conditions, benefit from exemptions on certain items of Italian-sourced income, such as income and gains on Italian qualifying bonds; income and gains on Italian funds; and gains on Italian non-substantial unlisted shareholdings. Furthermore, trusts domiciled in white-listed jurisdictions are not subject to deeming residence rules. Moreover, equity injections coming, directly or not, from white-listed jurisdictions to a resident company may more likely qualify for a deduction for the notional remuneration for equity.
Legislative Decree 14 September 2015, No. 147 (the Internationalisation Decree) brought significant legislative changes aimed at simplifying tax rules for cross-border business in both inbound and outbound scenarios, as well as providing certainty of tax rules to attract foreign investments. Among other developments, the Internationalisation Decree introduced a new procedure for advance tax rulings for new investments; provided new rules for inbound and outbound transfers of residence; introduced a foreign branch exemption regime; and reformed CFC legislation and the taxation of foreign dividends. The recent Circular letter No. 35 of 4 August 2016 provided clarifications on the reform of CFC legislation and of the taxation of foreign dividends.
CFC rules used to apply to both controlled and associated companies (the notion of associated company generally required a participation of at least 20 per cent into the profits of the foreign associated company); the reforms restricted the scope of CFC rules to controlled companies.
Furthermore, the reform introduced reporting obligations relating to participation in foreign companies that would be subject to CFC rules except where exemptions apply (eg, in the case of effective business activity carried out by the controlled company in its foreign market).
Finally, the blacklist relevant to CFC rules has been abolished and replaced with a test based on the foreign nominal rate (not applicable to EU member states or EEA member states with exchange of information with Italy).
The reform of the taxation of foreign dividends provides that foreign companies (not resident of an EU member state or an EEA member state with exchange of information with Italy) qualify for a “low-tax” regime, for the purposes of applying a “tax haven” dividend taxation, if the foreign nominal tax rate is lower than 50 per cent of the Italian nominal tax rate (rather than on the basis of a blacklist, as applicable prior to the reform).
Italian residents must seek advice on the impact of the above changes to their specific facts and circumstances.
Italian tax provisions stipulate that resident individuals holding foreign-held assets during the calendar year must report the holding of such assets in their income tax return. The Law of 6 August 2013, No. 97, already broadened the scope of the tax-reporting obligations on foreign-held assets by stipulating that resident individuals are required to report foreign-held assets that are held by, for example, companies, trusts or foundations, if they are regarded as the beneficial owners of such assets pursuant to Italian anti-money laundering legislation (no wealth tax is due on the assets reported in the capacity of beneficial owner).
The notion of beneficial owner for Italian anti-money laundering legislation is expected to be shortly broadened once Italy will implement the Directive (EU) 2015/849 of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. It is further expected that, following the change in the domestic notion of beneficial owner for anti-money laundering legislation, the scope of the tax-reporting obligations will automatically be broadened. In particular, in relation to trust assets, it is expected that the above tax-reporting obligations will apply to (among others) resident settlors and resident protectors, and that trust beneficiaries may be required to report trust assets irrespective of any entitlement to the capital of the trust.
Transfers and gifts upon death are subject to inheritance and gift tax at rates ranging from 4 per cent to 8 per cent, depending on the family relationship. In addition, transfers to spouses and direct descendants or direct ancestors benefit from an exemption to the amount of €1 million (this applies to each beneficiary).
It is possible that the inheritance and gift tax legislation may be amended in the future, in order to increase the inheritance and gift tax burden, by increasing the tax rates and reducing the exempt amount.
Furthermore, it is expected that the taxable values of Italian real estate may be increased due to the forthcoming revision of the Italian Land Registry (for inheritance and gift tax purposes, the taxable value of Italian real estate is usually equal to their cadastral value, ie, the value resulting from the Land Registry).
In the light of such potential changes, clients may wish to consider how they can benefit from the application of the current favourable regime (through gifts, gifts with reservation of the usufruct right, or the creation of trusts).
Moreover, in the event of a significant increase of the inheritance and tax burden, inheritance and gift tax will become more important in any tax-structuring exercise. For instance, it will become even more important to structure the transfer of businesses, participations in closely held companies, and interests in partnerships in order to secure the full exemption from inheritance and gift tax that may be available for the transfer of such assets to the spouse and descendants.
It is too early to determine the impact of Brexit. However, at this stage it is worth mentioning that, within Italian domestic law, several specific favourable provisions are applicable only in relation to EU member states (and sometimes EEA member states). The UK’s withdrawal from the EU may mean that the regimes laid down by the above-mentioned domestic provisions will not apply in relations with the UK. The aforementioned regimes include, among others, the levy of the flat-rate 26 per cent tax (instead of progressive tax rates) to distributions from qualifying foreign investment funds to resident individuals; the exemption from inheritance tax for foreign public bonds; and the levy of the 0.76 per cent annual wealth tax on foreign real estate on a deemed value relevant to foreign wealth or income taxes, rather than on the basis of the purchase price (for real estate in the UK, the tax authorities recognise, as a relevant foreign deemed value, the value for council tax purposes). It is worth mentioning that Brexit has also triggered an increase in the applications for Italian citizenship (on the basis of, for example, Italian ascendance or long-term Italian residence).
same-sex civil unions and trusts for disabled individuals
Same-sex civil unions have recently been introduced under Italian civil law (Law 20 May 2016, No. 76). Partners under same-sex civil unions are subject to the same patrimonial regime and to the same succession (including forced heirship) regime applicable to spouses. Moreover, they are subject to the same tax regime (for example, rates, exempt amount and exemptions) applicable to spouses. Same-sex marriages or civil unions executed abroad are assimilated to Italian same-sex civil unions.
Furthermore, another recent piece of legislation (Law 22 June 2016, No. 112) provides for a favourable tax regime for trusts created for the benefit of disabled individuals. Such legislation introduces, among others, a full exemption from inheritance and gift tax for the settlement of assets into trusts created for the benefit of disabled individuals (the creation of a trust – more precisely the addition of assets to the trust fund – is, according to the tax authorities and the Supreme Court, a taxable event for inheritance and gift tax purposes). The legislation also provides for an exemption from stamp duty at proportional rates if Italian real estate is settled into the trust (according to the tax authorities, the settlement of Italian real estate into a trust is subject to stamp duty at proportional rates).
A voluntary disclosure facility, which enabled taxpayers to disclose previously unreported assets and income with the benefit of a reduction of penalties, was available during 2015 and was very successful. It is expected that a new voluntary disclosure facility may be launched before the end of 2016.