With its Ruling n. 237 of March 2, 2023 (Risposta n. 237-2023), the Italian Tax Agency ruled that when the trustee of a foreign trust is required to make an annual distribution to the beneficiaries of the trust of cash or other property of the trust that represent a predetermined percentage of the
Italy’s New Flat Tax For First-Time Residents
Italy enacted a flat tax for first-time residents, which applies in lieu of the ordinary income tax on foreign source income. The flat tax is charged at the fixed amount of euro 100,000. Italian source income remain taxable with the ordinary income tax. First-time residents eligible for the flat tax are exempt from the duty to disclose their non Italian financial and real estate investments and accounts and are not subject to Italy’s estate and gift tax on non Italian assets.
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Italian Supreme Court Rules on Beneficial Ownership and Holding Companies
With ist ruling n. 27113/2016 issued on December 28, 2016, the Italian Supreme Court interpreted and applied the beneficial ownership provision of article 10 of the tax treaty between Italy and France, for the purpose of determining whether a French holding company, wholly owned by a U.S. corporation, was entitled to the imputed credit granted under that treaty in respect of dividends received from an Italian subsidiary.
The Italian Supreme Court held that the beneficial ownership provision of the Italy-France treaty requires that the recipient of the dividends has full dominion and control over the dividend, meaning, that it enjoys the right to receive and keep dividends, unconstrained by any legal or contractual obligation to pass the dividends on to its parent, and actually enjoys the economic benefit of the dividend, which it treats and reports as its own income on its accounting books and can dispose of without legal or contractual constraints.
According to the Supreme Court, the fact that the French holding company did not have staff, offices and other significant sources of income, except for the dividends it received from time to time from its subsidiaries, and did not engage in any other activities except for holding the legal title to the shares of its subsidiaries, is consistent with a holding company’s typical functions and role, and does not negate the status of beneficial owner and eligibility to the tax treaty benefits.
The ruling is consistent with a previous decision of the Supreme Court, which we reported in the past on our blog, holding that beneficial owner is the person who has the legal control and economic enjoyment of the dividend (we refer to the Supreme Court’s ruling n. 10792 issued on May 25, 2016).
The interpretation of the term ‘beneficial owner’ as the person having the legal and economic dominion and control over the dividend, followed by the Supreme Court in ruling n. 27113/2016, is also consistent with the clarification set forth at paragraph 12.4 of the 2014 Commentary to article 10 of the OECD Model Income Tax Convention, according to which ‘beneficial owner’ is the person who has the full right to use and enjoy the dividend, unconstrained by a contractual or legal obligation to pass on the payment received to another person.
The Supreme Court expressly rejected the notion that, in order to qualify as a beneficial owner of the dividend, the holding company is required to have a minimum level of organization, including employees and offices, and to engage in business activities generating operating receivables, aside from holding the legal title to the shares of its subsidiaries and receiving dividends therefrom.
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Italy Institutes New Register for Trusts
Under new anti money laundering legislation due to become effective in Italy in 2017, all foreign trusts with tax effects in Italy shall have to be filed and registered on the Italian Register of Enterprises. They include trusts with Italian settlor, Italian beneficiaries, Italian assets, Italian source income or treated as Italian resident trust under Italian tax law.
The tax effects of a trust in Italy and the consequent obligation to disclose it on the Italian Register of Enterprises is determined under Italian tax laws. The way in which a trust, its income or its beneficiaries are treated under foreign tax law is not determinative for that purpose.
Trustees of trusts subject to the new disclosure and filing rules shall have to collect, conserve and disclose adequate information about trust’s ultimate beneficial owners, which are meant to include the settlor, the trustee, the guardian, the beneficiaries, and any other person having any type of control or authority over the trust.
The scope of the new disclosure and reporting rules for trusts is very wide. All trusts with any apparent or potential point of contact with Italy should be revised to determine whether they fall within the application of the new rules. …
Italian Government Approved Final Draft Decree Enacting New EU Anti Money Laundering Directive
On February 23, 2017 the Italian Government approved the final draft of the legislative decree (the "Decree") that is going to implement the provisions of the Directive (EU) 2015/49 of May 20, 2015 (the so called "IV Anti Money Laundering Directive"). The decree was sent to the Parliament for its review and with the consent of the Parliament …
No Gift Tax On Transfer of Property To Trusts, Italy’s Supreme Court Ruled
In its ruling n. 21614 of October 26, 2016 Italy’s Supreme Court considered the issue of the application of the gift tax upon the transfer of property to a trust. The issue arises under the provisions of Law n. 262 of October 3, 2006, which reinstated the gift tax. Article 2 of Law 262, at…
Current Status of Anti Money Laundering Legislation and Practice In Italy
The EU Directive n. 2015/849 (the “IV Directive”) on anti money laundering sets forth new provisions requiring financial institutions and professional individuals to verify their customers or clients by identifying the ultimate “beneficial owner” of an entity, legal arrangement or financial transaction; obtaining and conserving information about their customers and the ultimate beneficial owners, as…
Italy’s Supreme Court Denies Treaty Benefits to UK Holding Company Under Beneficial Ownership Clause of UK-Italy Treaty
The Italian Supreme Court with its ruling n. 10792 of May 25, 2016 held that the 5 percent reduced dividend withholding tax provided for under article 10 of UK-Italy Tax Treaty does not apply, when the company that receives the dividends does not prove that it is the "beneficial owner" of the dividend as required…
Italy’s Supreme Courts Rules On Anti Inversion With Denial of Foreign Tax Credit
The Italian Supreme Court, with its ruling n. 8196 of April 22, 2015 held that a NY corporation, wholly owned by an Italian company, and effectively managed and controlled by its Italian shareholders and directors in Italy, had to be treated as an Italian resident company for Italian tax purposes, and was subject to corporate…
Application of Tax Treaties To Fiscally Transparent Entities: US-Italy Perspective
‘Tax Treaties’ ‘US-Italy Tax Treaty’ ‘Fiscally Transparent Entities’…
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