The New U.S.-Italy Tax Treaty entered into force on December 16, 2009.
The International Tax Institute, Inc. Launched Its New Website
http://www.internationaltaxinstitute.org/
OECD Releases Report on Granting of Treaty Benefits with Respect To The Income of Collective Investment Vehicles
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.
No Participation Exemption in the Absence of Active Business
Participation exemption rules do not apply to gains from sale of stock of passive intellectual property holding companies. For the exemption to applies, the company must be engaged in an active licensing business, which includes the active management and development of the intangibles and active licensing to third parties.
Italy Cracks Down on Tax Havens
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
New Tax Amnesty Takes Effect on September 15
New tax amnesty took effect on Sept. 15. The deadline to apply is April 15, 2010. The tax rate on undeclared foreign investments that are reported or repatriated under the amnesty is 5%.
Italy Amended its CFC Rules
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.
Circular 26/E of May 21, 2009 Provides Guidance on EU Dividends Withholding Tax
Italy issued circular n. 26/E of May 21, 2009 which provides clarifications on the new EU dividend withholding tax. The reduced tax rate of 1.375 percent applies to dividends paid to companies that are resident in an EU member state and are subject to corporate tax in their own state of residence, even though they do not pay any tax on their income due to an exemption or other particular tax regime that applies in that state.
Italian Supreme Court Held That Burden of Proof in Tax Avoidance Cases is Upon Taxpayers
Italian Supreme Court in judgment n. 8487 of April 8, 2009 placed upon taxpayers the burden to prove the existence of valid economic reasons to avoid the application of anti abuse provision and denial of tax benefits in tax avoidance transactions. The decision contradicts a previous ruling, n. 1465 issued on January 21, 2009 in which the burden of proof was placed upon the tax administration.
New Law Targets Tax Abuse of Repos, Securities Lending Transactions
New law targets the use of sale and repurchase agreements and securities lending transactions for tax advantages. According to the new law, the repo buyer or borrower in a securities lending transaction is eligible for tax benefits such as credits for withholding taxes or foreign taxes or participation exemption for dividends on stock, only if and to the extent those benefits could be attributed to the repo seller or securities lender. The new provision is aimed at stopping transaction such as dividend washing or dividend stripping, in which the a holder of securities who would not be eligible for certain tax benefits, transfer those securities to an accommodating party, who collects the benefits, in exchange for an equivalent economic consideration.