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

The Foreign Account Tax Compliance Act (FATCA) was enacted by the United States Congress in March 2010 and became effective on January 1, 2013. It is intended to assist US efforts to improve international compliance with US tax laws and will impose certain due diligence and reporting obligations on foreign (non-US) financial institutions which hold financial accounts for US customers. Under the new law, foreign financial institutions will provide to the U.S. tax administration automatic information about their US customers' financial accounts. 

On 26 July 2012, the U.S. Department of the Treasury published a Model Inter Governmental Agreement which will form the basis of bilateral IGAs with jurisdictions that wish to adopt this alternative means for their financial institutions to comply with FATCA while minimizing compliance burdens.

Italy joined the U.S. with a groups of other countries in a Joint Statement announcing that Italy will enter into and use the reciprocal agreement with the United States to implement FATCA and enact a system of reciprocal automatic exchange of information pursuant to which:

- Italian banks and financial institutions will provide the US tax administration with information about Italian banking and financial accounts held by U.S. customers with Italian banks in Italy,

- U.S. banks and financial institutions will provide Italy's tax authorities with information about US banking and financial accounts and investments held by Italian customers with US banks in the United States.        

The Model IGA follows the U.S. Department of the Treasury and Internal Revenue Service's release of proposed FATCA regulations, and the simultaneous announcement of an intergovernmental alternative to FATCA implementation, on 8 February 2012.

On January 17, 2013 the Treasury Department and the Internal Revenue Services issued the set of Final Regulations implementing the information reporting and back up withholding tax provisions of FATCA, with far reaching implications for U.S. taxpayers with Italian bank and financial accounts, as well as Italian taxpayers with US bank and financial accounts,  in addition to foreign financial institutions as well as US banks as explained above.   

• Email This
• Print
• Comments
• Trackbacks

Italian resident taxpayers are required to report to the Italian tax administration their foreign financial investments and assets, which can generate foreign-source income subject to tax in Italy. They report their foreign investments by filling out a special part of their annual income tax return referred to as form RW. Taxpayers who are not otherwise required to file an income tax return  (e.g., those who earn only salary income reported on form 730 equivalent to form W-2 in the United States) must file a full return just for the purpose of reporting their foreign investments on Part RW.

Italian international tax reporting through form RW is very extensive in scope and accompanied by very harsh penalties with very limited opportunities to rectify past mistakes or failures. It includes personal assets other than financial investments (e.g. personal residences, boats, jewelry, artworks). One section of form RW is used to report the value of the reportable assets at the end of the taxable year. Two separate sections are used to report outbound, inbound and foreign transfers of money or other assets relating to foreign assets subject to reporting (i.e. additional investments and disinvestments through purchases, sales or transfers of reportable assets).    

Reporting may be particularly complicated when foreign investments and assets are held through trusts or other foreign entities. Depending on the tax classification and treatment of the entity or trust the taxpayer may be exempt from reporting, required to report his or her own interest in the trust or entity itself, or required to report his or her own undivided ownership interest in the underlying assets held through the entity, with totally different results.

The duty to report revolves around several fundamental tax concepts: tax residency of the taxpayer, ownership of the asset, and tax nature of the asset and associated income.

Italian tax residency rules are far reaching and often based on technical and heavily factual tests. As a result, many non-Italian nationals who spend significant time in Italy for personal or business purposes or have personal, investments or business interests in Italy should act very carefully, especially now that the Italian tax agency is stepping up its enforcement actions in the effort of collecting additional revenue.

Indeed, if it turns out that they should be treated as resident of Italy for Italian tax purposes, they would automatically face the issue of not having reported their non-Italian assets, with all potential penalties associated with it, in addition to the main issue of having failed to file and their tax returns and to pay any taxes due.

International tax reporting rules are very technical and complex to administer. Italy’s tax administration issued a general guidance on international tax reporting of foreign assets and investments with Circular n. 45 of September 13, 2010. 

• Email This
• Print
• Comments
• Trackbacks

With its Ruling n. 3769 issued on March 9, 2012, the Italian Supreme Court significantly departed from its previous line of decisions on the issue of characterization of a foreign-owned Italian company as the permanent establishment of its foreign parent.

The case in which the ruling has been issued involved Boston Scientific S.p.A., an Italian joint stock company ("BS SPA") whose stock is  owned for 99 percent by Boston Scientific B.V. ("BS B.V.") a Dutch company  and for the remaining 1 per cent by Boston Scientific Corporation, a U.S. corporation ("BS USA"), which in turn controls BS B.V.

BS USA was engaged in the business of designing, manufacturing and selling medical equipment and devices. BS SPA operated as commission agent for BS B.V. for the purpose of the marketing and sale of the products of BS USA in Italy and the EU. 

From the summary of the facts as reported on the Supreme Court Judgment it appears that BS SPA acted under the management direction and control of BS B.V,, operated exclusively for BS B.V. as its only  client  and signed sales contracts with customers under its own name although in the interest of and pursuant to the final approval from BS B.V.    

The Italian tax agency took the position that BS SPA lacked economic and legal independence from BS B.V. and it operated as agent of BS B.V. according to the substance of its business dealings with its principal and final customers, even though it normally signed the contracts in its own name.  As a consequence, the tax agency re-characterized BS SPA as the permanent establishment of BS B.V. in Italy and assessed additional taxes and penalties on BS B.V., which should have accounted separately for its sales of products carried out in Italy through BS SPA, file its own Italian corporate tax return and pay the Italian corporate income tax on its net profits from its Italian sales accordingly.

Both the Italian Tax Court and the Appellate Court ruled in favor of the taxpayer and rejected the agency re-characterization and tax assessment, motivating their decisions with the fact that BS SPA had its own separate business organization of which it sustained all the costs, had assumed the economic risks of its business operations and was legally bound by the contracts it signed with the final buyers of the products under its own name as seller.

The Supreme Court affirmed the decision of the Appellate Court concluding that it was sufficiently and adequately motivated and that the grounds for appeal set forth by the tax agency were not sufficiently explained and could not be considered.

The Court in particular referred to the provisions of article 5 of U.S.-Italy tax treaty and argued that the Italian tax agency failed to explain the reasons why those provisions should be read in a way to create a permanent establishment when an Italian company contracts under its own name and risks and bears the economic cost of its business organization through which it conducts its business in Italy, for the sole fact that it is owned and controlled by a foreign company and operates under the supervision and directions of its foreign parent company.

Ruling 3769 is very encouraging. Indeed, the ruling seems to depart from the Supreme Court's previously established case law stemming form its 2002 decisions in the Philip Morris case and to provide more clarity for foreign businesses which plan to expand their operations into Italy. 

• Email This
• Print
• Comments
• Trackbacks

Il 17 Settembre scorso ad un convegno organizzato dalla American Chamber of Commerce in Italy a Milano abbiamo illustrato i principali aspetti legali e fiscali che le imprese italiane che investono sul mercato americano si trovano ad affrontare. Gli Stati Uniti, grazie alla loro competività e flessibilità, ad un mercato dei capitali estremamente evoluto, alla totale assenza di discriminazioni e barriere e a una grande propensione a premiare le capacità, lo spirito imprenditoriale ed il merito,   offrono formidabili opportunità di crescita e sviluppo del business alle numerose imprese italiane di piccole e medie dimensioni dotate di prodotti o servici unici o di alta qualità e di know how e tecnologia che le pongono in posizione di vantaggio competivo rispetto alla concorrenza. Allo stesso tempo, il sistema legale e fiscale USA richiede estrema attenzione e professionalità sia al momento dell'ingresso sia nella fase successiva della gestione del proprio business negli USA, e non tollera improvvisazione. Tra gli aspetti da curare vi sono quelli contrattuali, relativi ai contratti di distribuzione, agenzia o collaborazione commerciale stipulati con partners commerciali e ai contratti con i clienti, gli aspetti societari, amministrativi e organizzativi (scelta della migliore forma societaria, costituzione e capitalizzazione della società, apertura conti bancari, assunzione del personale e libri paga, assicurazioni, gestione della contabilità e dei bilanci, licenze e permessi, eccetera), e gli aspetti fiscali relativi  alle imposte sul reddito, federali e statali, e alle imposte indirette sulle vendite e sui consumi. Alleghiamo la nostra presentazione con la discussione dei suddetti aspetti, su cui è bene sollevare il livello di allerta ai fini di una corretta gestione ed esecuzione del proprio piano di business negli Stati Uniti.

• Email This
• Print
• Comments
• Trackbacks

In data 17 Maggio 2012 presso l'Università degli Studi di Roma Tre, nel contesto del master per Giuristi e Consulenti di Impresa gestito dal Prof. Tinelli, lo studio MQR&A ha riferito sul tema "Aspetti internazionali della fiscalità americana di interesse per gli investitori esteri".

La relazione, sia pure sintetica, ha inteso offire un breve excursus sui principi fondamentali di diritto fiscale internazionale americano applicabili agli investimenti e alle attività estere negli Stati uniti.

Gli Stati Uniti costituiscono tuttora il maggiore mercato del mondo di destinazione di attività e investimenti internazionali e attraggono costantemente imprenditori, professionisti, personale d'azienda e investitori esteri. La conoscenza del regime fiscale applicabile a questa categoria di soggetti ed attività è cruciale, in un contesto sempre più difficile e complesso di crescente globalizzazione e maggiore attenzione da parte delle amministrazioni fiscali.          

• Email This
• Print
• Comments
• Trackbacks

In data 14 Maggio 29012 lo studio MQR&A ha presentato alle imprese italiane interessate presso l'Associazione delle Piccole e Medie Imprese di Torino una relazione dal titolo "Fare Business negli USA - Casi di studio e analisi dei principali profili legali e fiscali".

Le imprese italiane che fanno business con o negli USA sono numerose. Le forme di business variano dalla esportazione diretta dall'Italia o vendita tramite agenti e distributori locali, alla fornitura di beni con prestazione di servizi accessori (installazione, assistenza post vendita) tramite proprio personale in loco, alla costituzione e gestione di società di diritto locale controllate dalla capo-gruppo o casa madre italiana.

Ciascuna forma presenta peculiarità e aspetti giuridici e fiscali che devono essere gestiti in maniera consapevole onde evitare rischi. Il sistema legale e fiscale americano è complesso e non consente di operare in maniera improvvisata.

La presentazione aveva lo scopo di fornire una disamina sommaria dei suddetti aspetti che consenta alle imprese di mettere in atto il giusto set up e la corretta struttura di gestione legale e fiscale dei propri affari e delle proprie attività negli Stati Uniti.

• Email This
• Print
• Comments
• Trackbacks

We provide below the link to an article on the U.S. Offshore Voluntary Disclosure Program appeared on the section LEGAL of the Italian newspaper FINANZA & MERCATI:

http://dl.dropbox.com/u/55738639/Finanza%26Mercati.pdf

• Email This
• Print
• Comments
• Trackbacks

On January 9, 2011 the Internal Revenue Service reopened the offshore voluntary disclosure program to help people hiding offshore accounts get current with their taxes and announced the collection of more than $4.4 billion so far from the two previous international programs.

The IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The third offshore program comes as the IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion.  This program will be open for an indefinite period until otherwise announced.

“Our focus on offshore tax evasion continues to produce strong, substantial results for the nation’s taxpayers,” said IRS Commissioner Doug Shulman. “We have billions of dollars in hand from our previous efforts, and we have more people wanting to come in and get right with the government. This new program makes good sense for taxpayers still hiding assets overseas and for the nation’s tax system.”

The program is similar to the 2011 program in many ways, but with a few key differences. Unlike last year, there is no set deadline for people to apply.  However, the terms of the program could change at any time going forward.  For example, the IRS may increase penalties in the program for all or some taxpayers or defined classes of taxpayers – or decide to end the program entirely at any point.

“As we’ve said all along, people need to come in and get right with us before we find you,” Shulman said. “We are following more leads and the risk for people who do not come in continues to increase.”



 

• Email This
• Print
• Comments
• Trackbacks

The Internal Revenue Service (U.S. tax administration) issued guidance (in the form of Fact Sheet FS 2011-13) on international tax reporting requirements for U.S. citizens or dual citizens residing outside of the United States.

In essence, the Guidance provides that U.S. citizens or dual citizens living and working abroad with (1) no tax balance due on their U.S. income tax returns (due, for example, to foreign tax credits for foreign taxes paid on their unreported foreign income earned in a foreign country, which offsets any U.S. tax due on that income, or U.S. foreign earned income exclusion excluding from U.S. tax certain employment income earned outside of the U.S.) or (2) a tax balance due but where the failure to report foreign income and pay associated residual U.S. taxes on it was due to reasonable cause (lack of proper advice or knowledge about the duty to report and tax such income), can file delinquent or amended tax  returns and rectify past mistakes and will not be assessed late filing or late payment payment penalties. In addition, there will be no penalties assessed on those same individuals with respect to late filings of their Foreign Bank Account Reports reporting foreign financial assets if their failure to file was also due to reasonable cause.

• Email This
• Print
• Comments
• Trackbacks

Starting with the tax year 2011, the new IRS Form 8938 must be filed by all U.S. persons if total foreign financial assets exceeded $50,000 at any point during the year.  Form 8938 will be in addition to the long-standing Treasury Department FBAR (Foreign Bank and Financial Accounts Report) required for financial assets abroad that exceed $10,000 and shall have to be filed together with the federal income tax return for the year. 

Furthermore, Form 8621 (Passive Foreign Investment Company – PFIC) must now be filed every year for each separate PFIC investment where as previously it was only required to be filed in years that distributions were made from the PFIC investment. Finally, the statute of limitation for IRS audits of returns listing foreign sourced income has been extended to 6 years (previously 3 years).

Where non-compliance is “non-wilful,” failure to file form 8938 results in a minimum $10,000 penalty but may rise to as much as 40% of the value of the asset or account.  This is in addition to the tax due and interest due.   Non-compliance deemed “wilful” may result additionally in criminal prosecution.

While FATCA does not change the existing penalties resulting from failure to properly report such as the FBAR and Form 8621 (PFIC report), FATCA will result in a dramatically increased enforcement of these rules and therefore U.S. citizens and residents (including Americans living abroad and foreign nationals living in the U.S) should become familiar with the  very significant penalties associated with these and other reporting requirements.

• Email This
• Print
• Comments
• Trackbacks

An interview on Marco Q Rossi & Associati has been published today on the Italian financial newspaper ITALIA OGGI. We attach below the file with the full account: www.lawrossi.com/images/stories/docs/MQR_Italia_Oggi.pdf 

• Email This
• Print
• Comments
• Trackbacks

On June 8, 2011 at Unindustria Bologna MQR&A will present on on the topic: "Legal, corporate and tax considerations for opening a business in the United States". The presentation will be divided in two sections. The first section will cover the best practices and a check list for the legal, corporate and tax  aspects relating to the establishment of business operations in the US. The second section will discuss the framework for Italian enterprises entering the U.S. market from a business, strategic and planning standpoint. We attach an invitation to the presentation, together with the slides that will be discussed at the event for the part I and part II of the presentation.     

• Email This
• Print
• Comments
• Trackbacks

Italy's Tax Code determines the tax residency of a company on the basis of one of three alternative tests: place of legal seat, place of management and principal place of business. As a result, an Italian or foreign company that is effectively managed from Italy is treated as an Italian company for Italian tax purposes and it is subject to tax in Italy on its worldwide income.

In order to prevent abusive practices consisting in putting an Italian company owned or controlled by Italian shareholders under the umbrella of a foreign holding company established in a tax favorable jurisdiction, Italy enacted special anti abuse provisions according to which a foreign company owning or controlling an Italian company is presumed to have its tax residency in Italy if one of two alternative tests are met: Italian shareholders control the foreign company, or the majority of the company's board members are Italian nationals. Taxpayers can rebut the presumption by providing clear and convincing evidence that the foreign company is effectively managed outside of Italy.

• Email This
• Print
• Comments
• Trackbacks

The IRS issued press release IR-2011-14 (Feb. 8, 2011) which announces the opening of a new program for the voluntary disclosure of foreign bank accounts with filing of back taxes and delinquent foreign bank account reports for the past eight years. The press release summarizes the highlights of the program and also links to a more detailed Q&A. The press release can be found here and the Q&A could be found here. As suggested by the IRS previously, the new program has stiffer penalty rules. OVDI requires individuals to pay a penalty of 25% of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. There are reduced penalties for some eligible taxpayer of 5 or 12.5%. Taxpayers will also have to pay back-taxes and interest for up to 8 years.  All of this is obviously more stringent compared to the 2009 program’s 20% penalty and 6 year look-back (2003-2008).  Taxpayers will have to enroll in the program by August 31st in order to be able to benefit from the potential avoidance of criminal liability and higher civil penalties. U.S. resident taxpayers with assets in Italy or other foreign countries, and U.S. citizens residing abroad and in Italy should pay attention to the new program, which may offer opportunities to rectify previous mistakes or omissions and be back in compliance with substantially reduced penalties.   

• Email This
• Print
• Comments
• Trackbacks

Article 2 of the bill on tax federalism under discussion in Parliament would introduce new provisions on taxation of Italian real estate income for individual taxpayers. Under current law, real estate income (both foreign and domestic) is reported on individual taxpayer's annual income tax return and is taxed as ordinary income at graduated rates. Under the new provisions, domestic real estate income would be subject to withholding tax at the flat rate of 20 per cent. The withholding tax would be a final tax. As the bill is currently drafted, the new flat tax would not apply to foreign source real estate income, which would still be part of total income subject to tax on a net basis. To the extent that the different taxation system leads to a harsher taxation of foreign real estate income compared to domestic real estate income, the new provisions could be challenged as invalid under the non discrimination and freedom of movement of capital principles of EU tax law. For foreign investors in Italian real estate, the new provisions would be beneficial because they would grant a lower tax rate under domestic law - the new flat 20 percent tax - than the tax rate currently commonly granted under tax treaties - 30 per cent.       

• Email This
• Print
• Comments
• Trackbacks

Con la Risoluzione n. 142/E del 30 dicembre 2010 l'Agenzia delle Entrate ha chiarito che anche il diritto di nuda proprietà, relativo ad attività estere di natura finanziaria ed altri ed investimenti esteri  attraverso cui possono essere conseguiti redditi di fonte estera imponibili in Italia, va riportato nel modulo RW della dichiarazione dei redditi.

A sostegno del proprio chiarimento, l'Agenzia ha richiamato la Circolare 45/E del 13 Settembre 2010 in cui, con interpretazione innovativa rispetto al regime precedente, si è ritenuto che le attività estere di natura finanziaria e gli altri investimenti esteri suscettibili di produrre redditi di fonte estera imponibili in Italia debbano essere riportati sul modulo RW, non soltanto quando essi effettivamente producono redditi imponibili in Italia, ma anche nell'ipotesi in cui la produzione dei predetti redditi sia soltanto astratta o potenziale. Questo è il caso, evidentemente, del diritto di nuda proprietà, che potrebbe essere ceduto a terzi separatamente dal diritto di usufrutto, e generare in questo modo una plusvalenza imponibile, oppure espandersi al momento dell'estinzione del diritto di usufrutto con possibilità di cessione o locazione dell'intero bene a terzi.

Il diritto di nuda proprietà va dichiarato in base al costo storico ad esso attribuito nell'atto costitutivo del medesimo, senza necessità di aggiornamento annuale. La risoluzione non precisa ma in caso di acquisto del diritto per successione per causa di morte, è ragionevole ritenere che si debba guardare al costo di acquisto del bene nella sua totalità, in capo al de cuius, ed attribuirne una quota proporzionale al diritto di nuda proprietà in ipotesi trasferito separatamente al diritto di usufrutto.

Il titolare del diritto di usufrutto per parte sua deve riportare sul modulo RW il valore del proprio diritto sussistente sul medesimo bene.  

• Email This
• Print
• Comments
• Trackbacks

By December 28, 2010 the tax administration received 1,300 transfer pricing documentation filings. Italy has introduced transfer pricing documentation requirements and Dec. 28 was the first deadline for taxpayers to notify that they have adopted transfer pricing documentation for past tax years. The notice for the year 2010 shall be due with the regular deadline for filing the annual corporate income tax return. Of the 1,300 filings, 500 came from foreign enterprises with Italian business operations and 340 were "major taxpayers" (companies with total revenue in excess of 100 million). The total number of "major taxpayers" operating in Italy is 4,000 and an estimated 60 percent is involved in transfer pricing issues. The tax administration considers the initial response to the new law a reasonable success and expects an increasing compliance from taxpayers. Fling the transfer pricing documentation notice protects from penalties both civil and criminal in case of transfer pricing audits and adjustments.            

• Email This
• Print
• Comments
• Trackbacks

Today Italy's Tax Administration issued Circular 58/E which provides guidance and instructions on transfer pricing documentation for multinational companies. New provisions in the Italian Tax Code now require that Italian multinationals and foreign companies doing business in Italy prepare and keep transfer pricing documentation to be able to avoid stiff penalties applicable in case of transfer pricing audits and adjustments. Taxpayers must notify the tax administration that they have prepared the transfer pricing documentation upon filing their annual income tax return, for the documentation relating to the tax year year 2010 and following years, and within December 29, 2010 for the documentation relating to prior years, and in any event before they receive any requests of information or audit notices from the tax administration. The tax administration clarified that failure to file the transfer pricing documentation notice may be considered as a factor to select taxpayers to be subject to audit.

• Email This
• Print
• Comments
• Trackbacks

Mutual funds give investors an opportunity to participate in diversified investment holdings and access to professional managent on the face of a relatively small investment.

The Italian tax treatment of domestic mutual funds is designed to provide portfolio investors with the same tax treatment they would receive if they owned directly the same investments that are held by the fund.

Under Italian law, when an Italian resident individual investor invest in portfolio stocks or bonds she is subject to tax at a preferential rate of 12.5% on the dividends or interest received or gain realized from her investments.

If the investment is carried out through an Italian mutual fund the tax rate of 12.5% is charged upon the fund. The tax is computed on the increase of the net asset value of the fund at the end of the tax year. No tax applies to the investor upon distribution of the income from the fund or redemption of fund shares.

If the investment is carried out through a foreign fund that is established and managed in accordance with the EU rules and regulations ("EU regulated fund"), the 12.5% tax is applied to the Italian investor at the time of the receipt of the income from the fund through distribution or redemption (or sale) of fund shares. 

If the investment is carried out through a foreign unregulated offshore fund, the income from the fund is included in the investor's income tax return when received (through distribution of fund profits or redemption or sale of fund shares) and subject to tax as ordinary income at the investor's marginal rate.

In case of investments in foreign stock and bonds, usually the dividends, interest or gains are subject to withholding tax in the foreign country at source, but the foreign withholding tax rate is reduced or eliminated under the tax treaty in effect between the foreign country and Italy as the investor's country of residence. The Italian resident investor is then subject to tax on the net amount received at the flat rate of 12.5% with no credit for the foreign withholding tax.

The same treaty benefits should apply whenever the same investments are held through a fund. However, the application of treaty benefits in that case may be controversial whenever the investor, by carrying out the investment through the fund, is able to defer the tax on the profit of the fund in her own country of residence or change the character of the income and benefit from the preferential rate that would otherwise not be applicable if she held the investment directly.

As a result, the application of the treaty benefits in case of investment through collective investment funds depends to a great extent upon the way in which the fund and its investors are taxed in the country of organization of the fund or the investors' country of residence. 

In the brief overview of Italian tax treatment of Italian mutual funds and Italian mutual funds investors that we attach herewith (Italian Taxation of CIV and Treaty Benefits.pdf) we would like to offer a background for a possible further discussions of the issue from the perspective on Italian law.       

• Email This
• Print
• Comments
• Trackbacks

Marco Rossi was one of the speakers at the meeting organized by the Chartered Institute of Taxation in Milan on October 15, 2010. Marco presented on transfer pricing documentation requirements from the perspective of the United States and regional organizations such as PATA, EU and OECD. Italy recently enacted its own rules on transfer pricing documentation. For the presentation you can click here  

• Email This
• Print
• Comments
• Trackbacks

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.
 

• Email This
• Print
• Comments
• Trackbacks

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)        

• Email This
• Print
• Comments
• Trackbacks

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.             

• Email This
• Print
• Comments
• Trackbacks

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).   

• Email This
• Print
• Comments
• Trackbacks

The Italian tax administration has published its first report on the international tax ruling (advance pricing agreement) procedures carried out in the first five years since the program was enacted in 2005.

The Italian international tax ruling is a special procedure through which a domestic enterprise engaged in international activities or a foreign enterprise engaged in investment or business activities in Italy can agree with the Italian tax administration on the tax treatment of certain important items concerning its cross border activities including amount income attributable to an Italian PE, transfer prices for the exchange of goods or services between affiliated companies, Italian withholding taxes on outbound interest, dividends and royalties (for an overview see Italy's International Tax Ruling.pdf.).

The total applications filed were 52 and 19 agreements have been signed, half of which by foreign multinational companies. The average time needed to go through the procedure and sign the agreement was 20 months. More than half of the rulings on transfer prices are based on comparable profits methods. Overall, the program had a very successful start and there are reasonable expectations for a continuing increase in the use of the program in the future.

• Email This
• Print
• Comments
• Trackbacks

The Italian Desk of Ernst & Young in New York has published comments on the new US-Italy Tax Treaty. The new Treaty entered to force with the exchange of instruments of ratification on December 17, 2010.

• Email This
• Print
• Comments
• Trackbacks

The pending 1999 U.S.-Italy Tax Treaty entered into force on December 16, 2009, when Italy and the United States exchanged the instruments of ratification.

The new U.S.-Italy Tax Treaty (PDF) is effective from February 1, 2009, for income subject to withholding tax and from January 1 2010, for all other provisions of the treaty.

The 1999 U.S.-Italy Tax Treaty remained pending for ten years due to certain general anti abuse provisions for the application of the reduced withholding tax rates on dividends interest and royalties, and some other issues concerning the exchange of information provision of the treaty and the arbitration procedure to resolve treaty disputes. Italy waived the anti abuse provisions by means of the exchange of diplomatic notes in April 2006 and February 2007 and ratified the treaty in April 2009.   

The new treaty includes provision on the creditability in the United States of the Italian Regional Tax on Production Activities (IRAP), the application of the US branch profits tax and new withholding tax rates on dividends, interest and royalties, plus a limitation of benefits provision in the protocol. 

The new withholding tax rates are 5 percent for inter-company dividends (namely, dividends paid to a company which owned at least 25 percent of the stock of the distributing company for more than twelve months), 10 percent on interest and zero percent on royalties from copyrights.

• Email This
• Print
• Comments
• Trackbacks

The OECD Committee on Fiscal Affairs has released as a discussion draft a Report on “The Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles”(PDF) which 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.  The Report is a modified version of the Report “Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles” (PDF) of the Informal Consultative Group on the Taxation of Collective Investment Vehicles and Procedures for Tax Relief for Cross-Border Investors (“ICG”) which was released on 12 January 2009. In that original Report, the ICG addressed the legal and policy issues specific to CIVs and formulated a comprehensive set of recommendations addressing the issues presented by CIVs in the cross-border context.

• Email This
• Print
• Comments
• Trackbacks