The taxation of dividends from companies resident in blacklisted countries in Italy is regulated by Article 47-bis of the Italian Tax Consolidation Act (TUIR) and various legislative decrees and circulars issued by the Italian Revenue Agency. Two situations are considered: when the foreign company is controlled by an Italian participant and its effective taxation is less than half of the Italian taxation, or when there is no control and the nominal taxation is less than 50% of the Italian taxation. A recent ruling from the Italian Revenue Agency provides operational guidelines based on a taxpayer’s request, and the proposed solution has been accepted. Previous circulars are referenced to ensure adequate taxation of income generated by foreign subsidiaries. Furthermore, simplified methods for calculating the effective tax rate are provided. In conclusion, the Italian Revenue Agency allows the application of simplified procedures within the regulatory framework concerning dividends from blacklisted countries, even in cases where there is no control over the foreign entity (full article in Italian).

 Legal provisions:

• Art. 47-bis DPR 917/1986
• Art. 167, paragraph 4 DPR 917/1986
• Legislative Decree 147/2015
• Legislative Decree 142/2019

Reference practices:

• Circular AdE n. 51E/2010
• Circular AdE n. 35E/2016
• AdE Provision Prot.376652/2021

The legal context of dividends from companies residing in blacklisted countries
The first paragraph of Article 47-bis of the Italian Consolidated Tax Act (TUIR) establishes the circumstances under which the tax regimes of states or territories other than those of the EU or members of the EEA, with which Italy has entered into agreements for effective exchange of information, should be considered “privileged.”

There are two situations in which foreign dividends from blacklisted countries are relevant in Italy:

1. Situation of control over the foreign company: actual taxation is considered The first case concerns a non-resident company or organization located in Italy that is controlled by a resident participant in Italy and meets the condition referred to in paragraph 4, letter a), of Article 167, i.e., it is subject to an effective taxation lower than half of what would have been applied if it were resident in Italy.
2. Situation of lack of control: nominal taxation is considered The second case concerns the lack of control as required in the first case. In this situation, the nominal tax level is relevant if it is lower than 50 percent of the tax applied in Italy. However, special regimes not structurally apply to all entities engaged in activities similar to the participating company should also be considered. These special regimes should be available based on the beneficiary’s specific subjective or temporal characteristics. They should provide exemptions or other reductions of the taxable base, thereby reducing the nominal tax below the indicated threshold.

Ruling – Simplified test for dividends from companies residing in blacklisted countries
Interesting insights emerge from the recent response provided by the Revenue Agency to a ruling request, which has not yet been published. The issue concerns the tax regime applied to dividends from entities resident in blacklisted countries, governed by Article 47-bis of the TUIR.
 

In the specific case, it involves an individual who holds a direct, non-controlling interest in a non-EU company subject to a foreign nominal tax rate of 11.85% in 2022, which is less than half of the nominal rate of Italian IRES (12%), and therefore falls within the regime provided by Article 47-bis, paragraph 1, letter b) of the TUIR, taxing the dividends according to the standard IRPEF rates specified in Article 47, paragraph 4, of the TUIR.

Taxpayer’s position and proposed solution.

The anti-avoidance provision does not apply if it can be demonstrated through the probative ruling that the holdings do not result in the localization of income in states or territories with a privileged tax regime (the so-called second exemption).

In this regard, it should be noted that following the legislative changes related to the adaptation to the ATAD Directive (implemented in Italy by Legislative Decree 142/2018), the second exemption was eliminated from the CFC regime under Article 167 of the TUIR (which is now based on effective taxation, requiring a foreign effective tax rate compared to the virtual Italian rate), but it is still provided.