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New Italian Rules for CFC

Maurizio Bottoni's picture

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), new Italian CFC rules were introduced by Legislative Decree n. 142/2018 which implemented in Italy the EU Anti-Tax-Avoidance Directive (so called, ATAD 1 and 2).

Controlled foreign company (CFC) rules have the effect of re-attributing the income of the controlled foreign entities to their shareholders, resident in Italy (individual, parent company, etc.). According to new art. 167 of the Presidential Decree n. 917/1986, a foreign company is qualified as CFC when at least one of the following conditions is met:

  1. 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);
  2. 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 fiscal re-attributing of the UE or Extra UE CFC income applies where both the following conditions are met:

  1. the corporate tax effectively paid by the UE or Extra UE CFC is lower than the half of the corporate tax that would have been charged on the CFC under the Italian corporate tax system (actually, equal to 24%);
  2. other than one third of the income accruing to the UE or Extra UE CFC falls within one or more following categories (so called “passive income”): interest or any other income generated by financial assets; royalties or any other income generated from intellectual property; dividends and income from the disposal of shares; income from financial leasing; income from insurance, banking and other financial activities; income from invoicing companies that earn sales and services income from goods and services purchased from and sold to associated enterprises, and add no or little economic value.

The Italian shareholder is still able to not apply the above mentioned rules by demonstrating that the CFC performs and effective business activity “by using personnel, facilities and office” (new wording of the law).   

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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.