Investment in Italy

Investment in ItalyUnless proved otherwise, foreign trusts are deemed to be Italian residents if:• they are not established in a ‘white-list’ country; and• at least one of the settlors and at least one of the beneficiaries is resident in Italy.Italian tax residence is also triggered if - after the trust is set up in a country not on the ‘whitelist’ - an Italian resident (i.e. settlor) transfers real estate or attached property rights to thetrust.Outbound interest paymentsA 27 percent withholding tax applies to interest paid to lenders resident in a country orterritory not included in a ‘white list’.Controlled Foreign Company (CFC)An Italian resident taxpayer may be subject to tax on profits realized abroad by:• ‘controlled’ entities (those in which the Italian resident directly or indirectly - also throughfiduciary companies or third parties - holds the majority of votes or exercises a ‘dominantinfluence’); and• ‘associated’ entities (those in which the Italian resident directly or indirectly - eventhrough fiduciary companies or third parties - holds the right to more than 20 percent ofthe profits or, in the case of listed entities, 10 percent); if• such entities are resident or established (reference is made to permanentestablishments of controlled foreign entities) in a state or territory which offers aprivileged tax regime (i.e. tax haven) as identified in a ‘black list’. As described above,a ‘white list’ (based on the criteria of an effective exchange of information andimperceptibly lower level of taxation) should be issued in the future and the CFCrules should then be applied to entities resident/established in states/territories that arenot included.Controlled entities located in EU Member States could also be affected by these provisionsif the effective level of taxation of the foreign entity’s income is lower than 50 percent ofthe Italian corporate taxation that would be levied on the same income if the foreign entitywere tax resident in Italy, and the foreign entity’s revenues are mainly passive or originatefrom related-party transactions.Safe harbour rules: the Italian taxpayer must be able to prove one of the following:a) that the foreign entity predominantly carries on an actual trading business as its mainactivity in the market of the ‘black-list’ state or territory in which it is located (businessvitality test). This test is not passed if more than 50 percent of the foreign entity’srevenues are generated by the management or holding of, or investment in, securitiesand shares, or lending and other financing activities, the trading or licensing of intellectualproperty rights, or services (of whatever nature, even financial) provided to related parties(controlled, controlling or subject to control by the same entity that controls the serviceprovider);b) that holding the interest in the foreign entity shifts the income to a ‘black-list’ state orterritory (subject to tax test: at least 75 percent of the income of the foreign entity is48© 2012 KPMG S.p.A., KPMG Advisory S.p.A., KPMG Fides Servizi di Amministrazione S.p.A., KPMG Audit S.p.A., Italian limited liability share capital companies, and Studio Associato Consulenza legale e tributaria, anItalian professional partnership, are member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.