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New Definition of Countries with Privileged Tax Status

Maurizio Bottoni's picture

Even if the Anti Tax Avoidance Directive 2016/1164/EU (ATAD 1) does not contains specific provisions, Italian Government has just introduced a new definition of countries with privileged tax status, effective from the fiscal year starting after the fiscal year in progress to December 31, 2018 (i.e. from January 1, 2019 for calendar year companies).

With the introduction of the new art. 47-bis of the Presidential Decree n. 917/1986, two different definitions of countries with privileged tax status have been provided, depending on the foreign company is controlled or not by a subject resident in Italy (individual or company).

In particular:

  1. where the foreign company is controlled, directly or indirectly, also through an trust company, according to art. 2359 Italian Civil Code (majority of the voting rights or influence) or the Italian shareholder, by itself or together with its associated enterprises holds a direct or indirect participation of more than 50 percent of capital or is entitled to receive more than 50 percent of the profits of that entity, the privileged tax status is assumed if the corporate tax effectively paid by the foreign company is lower than the half of the corporate tax that would have been charged on the above company under the Italian corporate tax system (actually, equal to 24%);
  2. where the the foreign company is not controlled, the privileged tax status is assumed if the corporate nominal tax level paid by the foreign company is lower than the half of the corporate tax that would have been charged on the above company under the Italian corporate tax system (actually, equal to 24%). In this case, it is necessary to verify the existence of special tax regime not applicable to everyone but usable only with specific temporary or subjective characteristic of the foreign company, which, even if not directly connected to the nominal tax rate, provide exemption or reduction of the taxable income.

The Italian shareholder is still able to not apply the above mentioned rules by demonstrating that the foreign company:

  • carries on a substantive economic activity supported by staff, equipment, assets and premises, as evidenced by relevant facts and circumstances;
  • is not used to produce any taxable income in countries with privileged tax status.

It is important to underline that the EU Countries and the Member States of the European Economic Area (Spazio Economico Europeo) which guarantee the exchange of information, are not qualifying as countries with privileged tax status.

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Maurizio Bottoni's picture

Maurizio Bottoni is the senior partner of Interconsulting. As a consultant in one of the Big Four he has developed a deep knowledge of the Italian and International tax law, through the involvement in operations and reorganization of multinationals. Extraordinary transactions and international issues are his daily business.