Investment in Italy

Investment in Italycountry on the list to be issued by the Ministry of Finance) will be subject to a reduced 1.375percent domestic withholding tax (the same level of taxation applied to dividends paid todomestic parent companies).Interest and royalties paid to non-resident recipientsInterest: generally a 12.5 percent withholding tax is provided (for interest payments to ‘blacklist’countries, see section 5.1.11). This rate may be reduced under tax treaty provisions.The EC Interest and Royalties Directive 2003/49/EC, as implemented in Italy, precludes anytaxation at source on interest (and royalty) payments to qualifying affiliated/associated EUcompanies, with effect from 1 January 2004. Special rules apply to interest on bonds andbank deposits.Royalties: generally a 30 percent withholding tax is applied on 75 percent of the grosspayment (i.e. 22.5 percent). This rate may be reduced under tax treaty provisions and theEU Directive (see above).5.1.7Tax consolidationBoth domestic and worldwide consolidation is available.Once exercised, the option for domestic consolidation is irrevocable for a period of threefiscal years and allows the taxable income and losses of the participating companies to besheltered, tax loss carryforwards to be shared (but only those originating after opting forconsolidation), and interest expense deductions to be carried forward (see section 5.1.9).Dividend payments between participants are 95 percent exempt and transfers of businessassets are taxable in the ordinary way. Claw-back rules apply if the consolidation regime isinterrupted early and even if the option is not renewed at the end of the three years. Nonresident‘tax-treaty companies’ with ‘Permanent Establishments’ (PE) located in Italy can bepart of a (domestic) tax consolidation group only as controlling companies.The option for worldwide consolidation may be exercised only on certain conditions and,once exercised, is irrevocable for five fiscal years. If renewed, the option is irrevocable forthree fiscal years.5.1.8Consortium reliefThe taxable income or tax loss of a qualifying Italian company can, by election, be attributedto resident corporate shareholders proportionally to their dividend rights (and irrespectiveof whether a dividend is actually paid). Companies with shareholders holding at least 10percent but not more than 50 percent of the dividend rights qualify for election.Non-resident shareholders may opt for this regime on condition that no withholding taxis levied on the profits distributed by the Italian subsidiary. In practice, this requirement issatisfied only when the EU Parent-Subsidiary Directive applies.The option is irrevocable for three fiscal years and can be renewed for periods of three years.Companies opting for tax consolidation and companies that have issued financial instrumentscarrying different profit rights do not qualify for the relief.© 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.45