A new law (Decree n. 5 of 2009 enacted on Feb. 11, 2009 and finally approved by the Parliament on April 9, 2009) targets the tax abuse of sale and repurchase agreements (commonly referred to as repos) and securities lending transactions.

According to a new provision added to article 2, par. 2 of Legislative Decree n. 461 of November 21, 1997, in case of sale and repurchase agreements or securities lending transactions, or any other arrangements having the same or equivalent economic effects, the repo buyer or borrower is entitled to a tax benefit such as credit for withholding taxes or foreign taxes or other similar benefits in respect of the securities transferred or loaned, only if the repo seller, lender or beneficial owner of the securities would be eligible for those tax benefits had it retained the legal ownership of the securities. 

A similar provision denies to the repo buyer or borrower of the securities the benefit of the participation exemption for  dividends paid on the securities transferred or loaned unless the repo seller or lender would be entitled to it.

Finally, Tax Code article 109, par. 3-bis provides that a loss from sale of stock is non deducible, to extent of the amount of dividends paid on the stock during the 36 months preceding the sale.

The new law establishes that transactions entered into prior to the enactment of the new provisions,  can still be challenged under the general anti abuse rules of article 37/bis of Presidential Decree n. 600 of 1973.