Tax Insights from International Tax Services
The Budget law 2021 introduces a new tax regime applicable to EU / EEA “regulated” investments funds. EEA means Norway, Iceland and Liechtenstein.
Pursuant to the new provisions, EU / EEA “regulated” investment funds will become exempt (starting from January 1, 2021) from Italian income taxes on Italian source dividends and capital gains deriving from any Italian equity investment held. No exemption is provided for FTT purposes. Due to Brexit becoming effective on the same day, UK funds will not be able to benefit from this provision.
The new provisions aim at eliminating a discrimination against foreign investment funds, in comparison with Italian investments funds. The reason why only European funds are exempted is that a pending infringement procedure (which the new provision aims to avoid) is rumored to only be targeting European funds.
Indeed, from an Italian tax perspective, Italian investment funds are currently fully tax exempt and not subject to any dividend or capital gain tax with respect to their Italian equity investments.
Conversely, the current tax regime for non-Italian investment funds implies that such funds are subject to tax in Italy on dividend received from Italian resident companies and on capital gains realized at a rate of 26% (with some exceptions applicable to capital gains on non-substantial shareholdings if realized by investment funds located in “white list” jurisdictions).
While the Budget law 2021 should prevent (only in the future) discriminations with respect to EU / EEA regulated investments funds, a discrimination with respect to previous fiscal years and with respect to non EU / EEA regulated investment funds will continue to exist. This is due to the circumstance that the fundamental freedom involved (viz. free movement of capital) is also extended to third countries and is not limited to EU ones. Nevertheless, investment funds not established in the EU / EEA should continue to be subject to tax on Italian dividends and capital gains (where applicable).
The law is silent on documentation requirements. Most will depend on what custodian banks will decide to do, since they are the entities charged with applying both the dividend WHT and (in most cases) the capital gains tax. Most likely, custodian banks will agree on some kind of home-made standardized form, like they have done in the past for other domestic WHT reductions.
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