Italian tax administration provided clarifications that expand the application of Italian CFC rules. In particular, the administration explained that income from contract manufacturing activities and income from purchases or sales of related party products count as passive income for the purpose of applying the passive income test that triggers the application of the rules to controlled foreign companies organized in non black listed jurisdictions. The clarifications pose additional burden on international tax planning of Italian multinationals.
Continue Reading Italian Tax Agency Extends Scope of CFC Rules

Tre risposte dell’Agenzia delle Entrate a domande in materia di CFC affermano l’estensione della normativa sulle controllate estere anche ai casi di controllate estere che svolgono attività di trading e di lavorazione di prodotti per conto della casa madre. Le imprese italiane multinazionali sono costrette a rivedere la pianificazione fiscale dei rapporti infragruppo e valutare la necessità di un interprello a salvaguardia della non applicazione automatica della normativa con recupero di reddito e imposte e applicazione di conseguenti sanzioni in Italia
Continue Reading L’Agenzia allarga i confini della normativa sulle CFC

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.
Continue Reading Italy Amended its CFC Rules

Italy’s Tax Administration in ruling 54 of March 3, 2009 clarified that debt instruments issued by Italian limited liability companies (SRLs) can qualify as debt obligations for tax purposes, and interest paid thereunder can be eligible for the exemption from Italian tax (portfolio interest exemption) fore foreign investors, if the instrument is not part of a permanent establishment of the foreign investor in Italy and the foreign investor otherwise qualifies for the exemption by reasons of being resident or domiciled in an approved jurisdiction (white-listed country).
Continue Reading Italian Tax Administration Clarified Tax Treatment of Debt Obligations Issued by Italian SRL’s