Investment in Italy

Investment in Italyb - the tax residence of foreign companies and entities, including trustsc - outbound interest paymentsd - CFCse - the participation exemption on capital gainsf - the participation exemption on inbound dividendsTransactions or relationships between domestic companies and entities located abroad aresubject to certain restrictions depending on whether or not the tax system of the foreignjurisdiction is classified as a privileged tax regime (i.e. a tax regime providing a noticeablylower level of taxation than Italy, an inadequate exchange of information, or other similarcriteria).The above system was previously based on ‘black lists’, which are being phased out infavour of two new ‘white lists’. Under this new approach, transactions/relationships withcountries not appearing on the new ‘white lists’ will still be subject to tax restrictions. Thetwo lists will be drawn up by the Ministry of Finance and will be based on the followingcriteria:• effective exchange of information (for issues a), b) and c) above)• effective exchange of information and an imperceptibly lower level of taxation (for issuesd), e) and f) above).The new provisions will apply from the tax year subsequent to that in which the relevantMinisterial Decree (i.e. the new ‘white lists’) is published in the Official Gazette. Afterpublication of the Decree a five-year transitional period is envisaged in order to regulate anyuncertain situations, e.g. countries not included in either list.Tax deduction of costs and expenses (transactions with countriesoffering privileged tax regimes)Costs and expenses arising from transactions with related or unrelated companies orundertakings resident or located in countries (other than EU/EEA Member States) notincluded in a ‘white-list’ jurisdiction or territory are deductible only if separate evidence ofthem is given in the income tax return and, upon request of the authorities, the residenttaxpayer can demonstrate one of the following:• that the counterpart carries out an actual industrial or commercial activity in thejurisdiction where it is based (economic substance)• that there are sound business reasons behind the transaction and the transaction hasactually taken place.An advance tax ruling can be requested in order to secure the deduction.Tax residence of foreign companies and entities, including trustsForeign companies and entities that own a controlling interest in an Italian resident companyare deemed to be resident in Italy for tax purposes if a) an Italian resident individual or entityis, either directly or indirectly, the ultimate shareholder or, b) the majority of the members ofthe board of directors are Italian residents.© 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.47