EU & Italian International Tax Law Blog : International Tax Lawyer & Attorney : Marco Rossi Law Firm : Italy, New York, European Union, EU

Marco Q. Rossi & Associati acted as legal counsel of Landi Renzo for the acquisition of Baytech. Landi Renzo is an Italian company publicly traded on thew Italian stock market and a leading supplier of CNG and LPG components and systems for alternative fuel vehicles. Baytech is a US engineering  company which holds EPA and CARB certifications for natural gas and propane fuel injection systems for GM vehicles and heavy duty engines.The acquisition was carried out through Landi's wholly owned US subsidiary, Landi Renzo USA Corporation. The closing of the acquisition was announced on July 29 (see presentation, Baytech Acquisition pdf, and press release, Cos Landi Baytech eng def.pdf).

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On 31 May 2010 the OECD Committee on Fiscal Affairs released a Report on “The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles”. The Report contains  proposed changes to the Commentary on the OECD Model Tax Convention dealing with the question of the extent to which either collective investment vehicles (CIVs) or their investors are entitled to treaty benefits on income received by the CIVs. These changes are expected to be included in the 2010 Update to the Model Tax Convention (the draft contents of which were released on 21 May 2010) and the Report would then be included in volume II of the loose-leaf and electronic versions of the Model.
 

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On February 25, 2010 the European Court of Justice issued its ruling in X Holding (C-337/08 X Holding Judgment.pdf). Under the facts of the case, a Dutch parent wanted to be allowed to combine with its Belgian subsidiary under the Dutch tax consolidation rules to use the latter losses, which it would have been allowed to use had the subsidiary been a branch. The Dutch fiscal unit system, which disregards intra group transactions, is consolidation. Under Dutch tax law, the Netherlands does not tax a foreign branch's profits, but allows a deduction for foreign branch's losses subject to recapture of branch's profits in the following years for an amount equal to losses allowed in prior years. The Belgian subsidiary could still use its losses in Belgium, so it was clear that the losses would not be deductible under Marks & Spencer holding and the case rested on a cash flow argument that the parent should be allowed to use the losses sooner in the Netherlands. The Attorney General's opinion concluded that the denial of consolidation of foreign subsidiaries is justified under the balanced allocation of taxing powers, coherence of tax system and need to protect member state's tax base and the restriction to the freedom of establishment is proportional and justified. The European Court of Justice upheld the AG's opinion and ruled in favor of the Dutch government. The Court rejected the taxpayer's argument that taxpayer should be allowed the same treatment granted in case of a foreign branch, on the ground that a foreign branch and a foreign subsidiary are not in a comparable situation, the former being subject in principle to the tax jurisdiction of the member state of origin, while the latter being an independent legal and tax entity subject only to the tax jurisdiction of the member state of destination.      

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On July 14, 2010 Marco Rossi presented a lecture on the European Union and EU tax law to candidates/students of Master of Science in Taxation at Fairfield University. We provided an overview of the European Union and its institutions, discussed the sources of EU law and the main developments in the area of EU statutory tax law (including the EU tax directives and tax arbitration convention), and illustrated the main concepts of the jurisprudence of the European Court of Justice in the area of direct taxation, including a brief analysis some landmark cases recently decided by the Court. We attach a copy of the presentation materials for your direct reference (EU Law-Fairfield University Lecture.pdf.) (An Italian Perspective On Recent ECJ Direct Tax Decisions (TNI 2_6_08).pdf)        

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Starting from July 1, Italian enterprises doing business abroad shall have to file a monthly or quarterly return reporting all their transactions entered into with foreign enterprises organized or domiciled in black listed jurisdictions.

According to article 110(10) of Italy's tax code, deduction of costs, expenses or losses arising from transactions entered into with enterprises based or domiciled in black listed jurisdictions is denied, unless the taxpayer can prove that (i) the transaction served a legitimate business and economic purpose going beyond tax saving and has been actually carried out, or (ii) the foreign enterprise is engaged in a real trade or business in the country in which it is organized or domiciled. In addition, all costs, expenses or losses must be separately stated on the annual income tax return. 

As a result of the new law, an Italian enterprise doing business with foreign enterprises organized in a black listed country shall also have to file an additional monthly or quarterly return reporting all its transactions with those enterprises.

Italy's Minister of Finance is expected to issue a new list of countries allowing exchange of tax information with Italy, which will fall outside the scope of the disclosure and non deduction rules.  

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Italy's Supreme Court in ruling n. 12295 of May 19, 2010 rules in favor of the tax administration in a case in which the tax administration challenged the foreign tax residency of an Italian taxpayer and assessed taxes and penalties of about 6 billion lire on a total amount of 4 billion lire of unreported income. The taxpayer maintained the position that he had established his tax residency in Monaco and received several payments through a Dutch holding company to which he had assigned his right to use his professional image for advertising and sponsoring contracts. The tax administration argued that the taxpayer while transfering his registered address in Monaco had maintained his actual domicile in Italy, where he had most of his personal, professional and economic ties (including a house, bank accounts, memberships in local clubs). The Supreme Court accepted the tax administration's position, holding that when Italy remains the taxpayer's center of main interests, Italy is taxpayer's tax residency despite the registered address has been move abroad. Italy now applies a provision according to which, when a taxpayer establishes his or her registered residency in a low tax jurisdiction, the taxpayer bears the burden to prove that the foreign residency is also the place in which the taxpayer regularly lives and maintains the main center of his or her interest.        

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A decree with extraordinary budget correction measures for a total amount of twenty five billion euros has been presented to the Council of Ministers for approval and presentation to the Parliament for final enactment into law. The decree includes some important tax provisions. Among them, there are new provisions requiring that multinational companies engaged in cross-border intra-group transactions prepare contemporaneous documentation in support of their transfer prices for the services and goods provided to their affiliates. Also, the minimum threshold for the duty to report cross border transfers of money is reduced to euro 5,000. Finally, a super black list of jurisdictions that are considered more at risk for money laundering and support to terrorist or criminal activities will be enacted. Italian financial intermediaries, professional advisers and accountants shall not be allowed to do business with entities or individuals who operate in those countries and shall have to disclose any transactions carried out in or with those jurisdictions to the Italian tax administration.             

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The list of customers of the Swiss branch of the UK bank HSBC, prepared by former HSBC employee Mr. Hervé Falciani and offered to governments engaged in investigations on unreported foreign bank accounts and tax evasion conducts, has been delivered by the French prosecutor to the Italian prosecutors and tax officials for investigation on Italian bank account holders.

The list is said to contain 120,000 names, out of which 7,000 names are Italian customers of the bank with potentially unreported bank accounts.

Under Italian law, failing to report foreign investments carries a penalty of 10 to 50 percent of the value of the unreported investments. Furthermore, the assets on the account are presumed to constitute unreported taxable income, and penalties for failure to report foreign taxable income from unreported foreign accounts range from 240 to 480 percent of the tax due. 

Italy enacted an amnesty for the repatriation of undeclared foreign assets which elapsed on April 30, 2010. Under the tax amnesty program taxpayers had the opportunity to declared their foreign assets and repatriate them into Italy without any tax or penalty by paying a substituted tax of 5 to 7 percent.      

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Various foreign banks with branches in Italy that act as intermediaries for the purposes of tax refund applications filed on behalf of nonresident persons received a notice from the Italian tax agency in charge with the refund procedure announcing the application of stricter controls in the processing of the tax refunds. The tax office will require specific information about the beneficial owners of the refund in order to avoid abuses and treaty shopping. The banks shall have to provide the complete personal information about the final beneficiaries of the refunds, including their foreign and Italian taxpayer identifications numbers. In case of trusts or funds, the tax agency will require the taxpayer identification number issued in the residence state as well as in Italy both to entity and its legal representative. As a consequence, if the trust or fund is a fiscally transparent entity that does not have a taxpayer identification number in its own country, the bank may need to provide the information about the final investors or the grantors or  beneficiaries of the trust. The new approach follows recent audits that resulted in the denial of the refund of dividend tax credits to various banks that engaged in dividend washing transaction (for a total amount of about 4.2 billion euro).   

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