2009

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.

In connection with the enactment of its own tax amnesty (which permits the repatriation or regularization of undeclared foreign investments with the payment of a very generous 5% flat tax on the fair market value of the undeclared assets), Italy is cracking down on tax havens, especially those across the border such as Switzerland, Liechtenstein…

Italy amended its CFC rules with effect from 1/1/2010. Under the new rules, the active business exception applies only when the controlled foreign company carries on a business in the local market of the country in which the company is established, and it never applies to company more than 50 percent of whose income is passive income (dividends, interest, gains and income from services to affiliated entities). Also, the CFC rules apply also to companies that are established in white listed jurisdictions, when (1) the foreign company is subject to an effective tax in its own country of organization that is less than 50 percent of the Italian tax, and (2) more than 50 percent of the foreign company’s income is passive income (dividends, interest, gains and income from services to affiliated entities. As a result of the changes, many tax planning structures for Italian companies shall have to be revisited. In particular, many holding companies used by Italian company to handle their outbound investments may become CFC and their income could become taxable currently upon their Italian shareholders in Italy.…