italy-ctg24

Worldwide Corporate Tax Guide 2024

885

Italy ey.com/globaltaxguides

Milan Studio Legale Tributario Via Meravigli -14 20123 Milan Italy Principal Tax Contact

 Marco Magenta,

National Director of Tax

Business Tax Services

 Alexia Pinter

(resident in Verona)

Tax Policy and Controversy

 Maria Antonietta Biscozzi

Enrico Ceriana

Pasquale Cormio

Andrea Daglio

Global Compliance and Reporting

Marco Cianchelli

Giuseppe Mauri

Matteo Andrea Maisto

Massimo Milcovich

 Marta Pensotti Bruni

Fabrizio Pini

Luca Stampacchia

 Paolo Zucca, Capital Markets

GMT +1 +39 (02) 85141 Fax: +39 (02) 8901-0199

+39 (02) 851-43529 Mobile: +39 335-545-9199 Email: marco.magenta@it.ey.com +39 (045) 839-29-526 Mobile: +39 335-122-9923 Email: alexia.pinter@it.ey.com +39 (02) 851-43312 Mobile: +39 335-122-9318 Email: maria-antonietta.biscozzi@it.ey.com +39 (02) 851-43222 Mobile: +39 335-122-9486 Email: enrico.ceriana@it.ey.com +39 (02) 851-43267 Mobile: +39 320-430-4416 Email: pasquale.cormio@it.ey.com +39 (02) 851-43415 Mobile: +39 366-613-4313 Email: andrea.daglio@it.ey.com +39 (02) 8066-93202 Mobile: +39 335-1231-519 Email: marco.cianchelli@it.ey.com +39 (02) 8066-93902 Mobile: +39 335-1230-191 Email: giuseppe.mauri@it.ey.com +39 (02) 851-43863 Mobile: +39 334-655-0815 Email: matteo-andrea.maisto@it.ey.com +39 (02) 851-43339 Mobile: +39 335-123-0199 Email: massimo.milcovich@it.ey.com +39 (02) 851-43260 Mobile: +39 334-653-9803 Email: marta.pensotti-bruni@it.ey.com +39 (02) 8066-99008 Mobile: +39 334-693-9641 Email: fabrizio.pini@it.ey.com +39 (02) 8066-99265 Mobile: +39 339-753-0440 Email: luca.stampacchia@it.ey.com +39 (02) 851-43938 Mobile: +39 335-123-1388 Email: paolo.zucca@it.ey.com

886 I ta ly International Tax and Transaction Services – International Corporate Tax Advisory

Simone De Giovanni

Marco Magenta

+39 (02) 851-42645 Mobile: +39 334-217-6944 Email: simone.de-giovanni@it.ey.com +39 (02) 851-43529 Mobile: +39 335-545-9199 Email: marco.magenta@it.ey.com

International Tax and Transaction Services – Transaction Tax Advisory

Roberto De Bernardinis

Quirino Imbimbo

Alessandro Padula

Rossella Patella

Aurelio Pensabene

Mauro Scognavilla

 Savino Tatò

+39 (02) 851-43486 Mobile: +39 338-538-1456 Email: roberto.de-bernardinis@it.ey.com +39 (02) 851-43565 Mobile: +39 334-8825-983 Email: quirino.imbimbo@it.ey.com +39 (02) 851-43243 Mobile: +39 347-322-1599 Email: alessandro.padula@it.ey.com +39 (02) 851-43496 Mobile: +39 366-613-4232 Email: rossella.patella@it.ey.com +39 (02) 851-49650 Mobile: +39 335-712-6868 Email: aurelio.pensabene@it.ey.com +39 (02) 851-43549 Mobile: +39 366-774-2239 Email: mauro.scognavilla@it.ey.com +39 (02) 851-43511 Mobile: +39 335-1230-0992 Email: savino.tato@it.ey.com

International Tax and Transaction Services – Japanese Business Services Takahiro Kitte

+39 (02) 8066-93230 Mobile: +39 335-123-0052 Email: takahiro.kitte@it.ey.com

International Tax and Transaction Services – China Business Services Alessia Pastori

+39 (02) 851-49363 Mobile: +39 338-373-4364 Email: alessia.pastori@it.ey.com

International Tax and Transaction Services – Tax Desk Abroad Emiliano Zanotti

(resident in New York)

+1 (212) 466-9723 Mobile: +1 (646) 593-2609 Email: emiliano.zanotti2@ey.com

International Tax and Transaction Services – International Capital Markets Renzo Rivolta

Domenico Serranò

Giancarlo Tardio

Arianna Vergna

+39 (02) 851-43427 Mobile: +39 331-674-3230 Email: renzo.rivolta@it.ey.com +39 (02) 851-43932 Mobile: +39 331-663-8427 Email: domenico.serrano@it.ey.com +39 (02) 851-43947 Mobile: +39 335-679-3658 Email: giancarlo.tardio@it.ey.com +39 (02) 851- 43559 Mobile: +39 335-674-6839 Email: arianna.vergna@it.ey.com

I ta ly 887 International Tax and Transaction Services – Transfer Pricing and Operating Model Effectiveness

 Massimo Bellini

Davide Bergami

Giusy Bochicchio

Luigi Colantonio

Antonfortunato Corneli, Capital Markets

Antonino De Benedictis

Alfredo Orlandi

Business Tax Advisory Marco Cristoforoni

Giovanni Lettieri

Norberto Mariani

Michele Mirabella

Chiara Pirrone

Laura Scapini, Capital Markets

People Advisory Services Francesco Buzzegoli

Fabrizio Cimino

Ginevra Di Gregorio

Silvia Menaguale

Natalina Pino

Claudio Quartana

+39 (02) 851-43428 Mobile: +39 331-674-3260 Email: massimo.bellini@it.ey.com +39 (02) 851-43409 Mobile: +39 335-122-9309 Email: davide.bergami@it.ey.com +39 (02) 851-43650 Mobile: +39 335-602-2681 Email: giusy.bochicchio@it.ey.com +39 (02) 851-49466 Mobile: +39 346-507-6349 Email: luigi.colantonio@it.ey.com +39 (02) 851-43911 Mobile: +39 335-815-6168 Email: antonfortunato.corneli@it.ey.com +39 (02) 851 49661 Mobile: +39 333-207-5581 Email: antonino.de-benedictis@it.ey.com +39 (02) 851-43465 Mobile: +39 335-153-3674 Email: alfredo.orlandi@it.ey.com +39 (02) 851-43250 Mobile: +39 335-122-9736 Email: marco.cristoforoni@it.ey.com +39 (02) 851-43516 Mobile: +39 335-565-1957 Email: giovanni.lettieri@it.ey.com +39 (02) 851- 43425 Mobile: +39 338-650-3371 Email: norberto.mariani@it.ey.com +39 (02) 851- 43467 Mobile: +39 337-126-4630 Email: michele.mirabella@it.ey.com +39 (02) 851- 42069 Mobile: +39 339-799-5372 Email: chiara.pirrone@it.ey.com +39 (02) 851-43930 Mobile: +39 335-142-5966 Email: laura.scapini@it.ey.com +39 (02) 8514-3583 Mobile: +39 337-1571086 Email: francesco.buzzegoli@it.ey.com +39 (02) 851-43241 Mobile: +39 335-1425-985 Email: fabrizio.cimino@it.ey.com +39 (02) 851-40011 Mobile: +39 339-790-1719 Email: ginevra.di.gregorio1@it.ey.com +39 (02) 851- 43235 Mobile: +39 337-119-0024 Email: silvia.menaguale@it.ey.com +39 (02) 851-49625 Mobile: +39 335-179-5315 Email: natalina.pino@it.ey.com +39 (02) 851-43563 Mobile: +39 366-906-5012 Email: claudio.quartana@it.ey.com

888 I ta ly Paolo Santarelli

Juljana Xhafa

Indirect Tax

Gabriella Cammarota, Capital Markets

Anselmo Martellotta

 Stefano Pavesi

Legal Services

Aldo Brielli

Maria Cristina Breida

Christian Busca

Elena Carpani

Daniele Caneva

Giovanni Casucci

Oriana Granato

Maria Teresa Iannella

Carlo Lichino, Capital Markets

Michele Odello,

Capital Markets

Mattia Riccardo Petrillo

 Stefania Radoccia

Alessandro Sampietro

Matteo Zapelli

+39 (02) 851-43271 Mobile: +39 335-1233-151 Email: paolo.santarelli@it.ey.com +39 (02) 8066-92031 Mobile: + 39 335-745-783 Email: juljana.xhafa@it.ey.com +39 (02) 851-43904 Mobile: +39 335-679-9459 Email: gabriella.cammarota@it.ey.com +39 (02) 851-43485 Mobile: +39 338-9356-172 Email: anselmo.martellotta@it.ey.com +39 (02) 851-43646 Mobile: +39 366-6149-252 Email: stefano.pavesi@it.ey.com +39 (02) 851-49556 Mobile: +39 335-757-4856 Email: aldo.brielli@it.ey.com +39 (02) 851-43166 Mobile: +39 335-319-280 Email: maria.cristina.breida@it.ey.com +39 (02) 851-43530 Mobile: +39 335-123-1541 Email: christian.busca@it.ey.com +39 (02) 851-49892 Mobile: +39 339-797-9783 Email: elena.carpani@it.ey.com +39 (02) 851-42999 Mobile: +39 339-797-9744 Email: daniele.caneva@it.ey.com +39 (02) 851-49490 Mobile: +39 333-189-6753 Email: giovanni.casucci@it.ey.com +39 (02) 851-49387 Mobile: +39 334-505-2215 Email: oriana.granato@it.ey.com +39 (02) 851-43880 Mobile: +39 334-655-0853 Email: maria-teresa.iannella@it.ey.com +39 (02) 851-40162 Mobile: +39 347-951-8023 Email: carlo.lichino@it.ey.com +39 (02) 851-42626 Mobile: +39 348-057-5880 Email: michele.odello@it.ey.com +39 (02) 851-41 Mobile: +39 338-462-1195 Email: mattia.riccardo.petrillo@it.ey.com +39 (02) 851-43802 Mobile: +39 335-745-4259 Email: stefania.radoccia@it.ey.com +39 (02) 851-43515 Mobile: +39 335-406-026 Email: alessandro.sampietro@it.ey.com +39 (02) 851-43852 Mobile: +39 335-123-1383 Email: matteo.zapelli@it.ey.com

I ta ly 889 Bari Studio Legale Tributario Via Gimma, 73 70121 Bari Italy Business Tax Advisory Michele Lotito

GMT +1 +39 (080) 520-7430 +39 (080) 521-0538

+39 (080) 520-7430 Mobile: + 39 333-203-5711 Email: michele.lotito@it.ey.com

Bologna Studio Legale Tributario Via Massimo D’Azeglio, 34 40123 Bologna Italy Business Tax Advisory Gianluca Cavallari

GMT +1 +39 (051) 278-411 Fax: +39 (051) 235-538

+39 (051) 278-438 Mobile: +39 337-145-4059 Email: gianluca.cavallari@it.ey.com

International Tax and Transaction Services – International Corporate Tax Advisory Luisa Savio

+39 (051) 278-336 Mobile: +39 335-774-1962 Email: luisa.savio@it.ey.com

International Tax and Transaction Services – Transfer Pricing and Operating Model Effectiveness

Vanessa Greco

+39 (051) 278-337 Mobile: +39 349-394-0897 Email: vanessa.greco@it.ey.com

Florence Studio Legale Tributario Piazza della Libertà, 11 50123 Florence Italy Business Tax Advisory

Cristiano Margheri

GMT +1 +39 (055) 552-411 Fax: +39 (055) 552-4420 +39 (055) 552-4410

+39 (055) 552-4449 Mobile: + 39 333-546-6772 Email: cristiano.margheri@it.ey.com

Naples Studio Legale Tributario Via dei Mille, 40 80121 Naples Italy Business Tax Advisory Antonio Cennamo

Alessandro Pacieri

(resident in Rome)

GMT +1 +39 (081) 2489-111 Fax: +39 (081) 2489-350

+39 (081) 2489-111 Mobile: +39 333-267-7680 Email: antonio.cennamo@it.ey.com +39 (06) 855-67-5349 Mobile: +39 339-752-8882 Email: alessandro.pacieri@it.ey.com

890 I ta ly Rome Studio Legale Tributario Via Aurora, 43 00187 Rome Italy

GMT +1 +39 (06) 855-67-111 Fax: +39 (06) 855-67-336

International Tax and Transaction Services – International Corporate Tax Advisory

Daniele Ascoli

Domenico Borzumato

(resident in London)

+39 (06) 855-67-5377 Mobile: + 39 335-174-1603 Email: daniele.ascoli@it.ey.com +44 (20) 7951-5693 Mobile: +39 335-144-4978 Email: dborzumato@uk.ey.com

International Tax and Transaction Services – Transfer Pricing and Operating Model Effectiveness Fabio Zampini

Global Compliance and Reporting Emiliano Igliozzi

Business Tax Advisory Giacomo Albano

Grazia Carbone

Fabrizio Iachini

Marco Marani

Alessandro Pacieri

People Advisory Services

Barbara Damin

Claudia Giambanco

Indirect Tax

Alessandra Di Salvo

Emma Greco

Legal Services

Maria Cirillo

Rita De Grazia

+39 (06) 855-67296 Mobile: +39 340-316-1979 Email: fabio.zampini@it.ey.com

+39 (06) 324-75-4641 Mobile: +39 335-142-6340 Email: emiliano.igliozzi@it.ey.com +39 (06) 855-67-5338 Mobile: +39 335-745-4245 Email: giacomo.albano@it.ey.com +39 (06) 855-67-606 Mobile: +39 338-935-6598 Email: grazia.carbone@it.ey.com +39 (06) 855-67-5297 Mobile: +39 393-472-5837 Email: fabrizio.iachini@it.ey.com +39 (06) 855-67333 Mobile: +39 328-978-6005 Email: marco.marani@it.ey.com +39 (06) 855-67-5349 Mobile: +39 339-752-8882 Email: alessandro.pacieri@it.ey.com +39 (06) 855-67-5240 Mobile: +39 338-935-0115 Email: barbara.damin@it.ey.com +39 (06) 855-67-5332 Mobile: +39 335-123-3660 Email: claudia.giambanco@it.ey.com +39 (06) 855-67-4917 Mobile: +39 335-736-1484 Email: alessandra.di.salvo@it.ey.com +39 (06) 855-67-5327 Mobile: +39 335-153-4201 Email: emma.greco@it.ey.com +39 (06) 855-67-862 Mobile: +39 335-736-1485 Email: maria.cirillo@it.ey.com +39 (06) 855-67-5334 Mobile: +39 334-695-2484 Email: rita.de-grazia@it.ey.com

I ta ly 891 Antonella De Simone

Renato Giallombardo

Luca Iannaccone

Alessandra Pietroletti

Dario Pozzi

+39 (06) 855-67-850 Mobile: +39 335-123-3837 Email: antonella.desimone@it.ey.com +39 (06) 855-67-5949 Mobile: +39 348-397-3862 Email: renato.giallombardo@it.ey.com +39 (06) 855-67-855 Mobile: +39 335-123-3655 Email: luca.iannaccone@it.ey.com +39 (06) 855-67-851 Mobile: +39 334-655-0870 Email: alessandra.pietroletti@it.ey.com +39 (06) 855-67-513 Mobile: +39 334-318-8792 Email: dario.pozzi@it.ey.com

Treviso Studio Legale Tributario v. le Appiani 20/B 31100 Treviso Italy Business Tax Advisory

Stefano Brunello

Valeria Mangano

Marcantonio Zago

Giuliano Zanchi

GMT +1 +39 (0422) 625-111 Fax: +39 (0422) 228-06

+39 (0422) 625-106 Mobile: +39 335-123-2646 Email: stefano.brunello@it.ey.com +39 (0422) 625-165 Mobile: +39 335-123-2639 Email: valeria.mangano@it.ey.com +39 (0422) 625-196 Mobile: +39 335-767-7026 Email: marcantonio.zago@it.ey.com +39 (0422) 625-144 Mobile: +39 335-677-5341 Email: giuliano.zanchi@it.ey.com

Turin Studio Legale Tributario Via Meucci, 5 10121 Turin Italy

GMT +1 +39 (011) 516-5211 Fax: +39 (011) 531-047

Tax Technology and Transformation

Marco Bosca

Business Tax Services Erica Paolino

Fabio Rousset

Guido Sodero

Indirect Tax

Anna Paola Deiana

+39 (011) 516-5236 Mobile: +39 335-123-2994 Email: marco.bosca@it.ey.com +39 (011) 516-5288 Mobile: +39 347-140-0659 Email: erica.paolino@it.ey.com +39 (011) 516-5246 Mobile: +39 335-189-5128 Email: fabio.rousset@it.ey.com +39 (011) 516-5297 Mobile: +39 334-695-2435 Email: guido.sodero@it.ey.com +39 (011) 516-5293 Mobile: +39 335-1232-835 Email: anna-paola.deiana@it.ey.com

892 I ta ly Verona Studio Legale Tributario Viale Isonzo, 11 37126 Verona Italy Business Tax Services

Alexia Pinter

GMT +1 +39 (045) 839-2911 Fax: +39 (045) 8392-9527

+39 (045) 839-29-526 Mobile: +39 335-122-9923 Email: alexia.pinter@it.ey.com

A. At a glance Corporate Income Tax Rate (%) Capital Gains Tax Rate (%) Branch Tax Rate (%) Withholding Tax (%) Dividends Interest Royalties from Patents, Know-how, etc.

Branch Remittance Tax Net Operating Losses (Years) Carryback Carryforward

24 (a) 1.2/24 (b) 24 (a) 0/1.2/26 (c)(d) 0/12.5/26 (e)(f) 0/22.5/30 (f)(g) 0 0 Unlimited (h)

(a) A 3.5% surcharge applies to banks and other financial entities. A local tax on productive activities (imposta regionale sulle attività produttive, or IRAP) is imposed on the net value of production at a standard rate of 3.9%. For further details regarding IRAP, see Section B. (b) For details concerning capital gains taxation, see Section B. (c) Withholding tax is not imposed on dividends paid between resident companies. The 26% rate applies to dividends paid to resident individuals with substantial and non-substantial participations (for information on substantial and non-substantial participations, see the discussion of capital gains taxation in Section B). The 26% rate applies to dividends paid to nonresidents.

An exception applies to selected European Union (EU) or European Economic Area (EEA) investment funds which benefit from a dividend withholding tax exemption. Nonresidents may be able to obtain a refund of the withholding tax equal to the amount of foreign tax paid on the dividends, up to a limit of 11/26 of the withholding tax paid. Tax treaties may provide for a lower tax rate. A 1.2% rate applies under certain circumstances (see Section B). If either the treaty or the 1.2% rate applies, the 11/26 tax refund cannot be claimed. (d) Under the EU Parent-Subsidiary Directive, dividends distributed by an Italian subsidiary to an EU parent company are exempt from withholding tax, if among other conditions, the recipient holds 10% or more of the shares of the subsidiary for at least 12 months. See Section B. Similar treatment (however, a 24-month minimum shareholding period is required) may apply to dividend payments to Swiss parents under the EU-Switzerland agreement. (e) The 0% rate applies under certain circumstances to interest derived by nonresidents on the approved list (see Section B) from treasury bonds, bonds issued by banks and “listed” companies, “listed” bonds issued by “non-listed” companies (often referred to as “mini-bonds”), nonbank current accounts and certain cash pooling arrangements, and in other specific cases (for example, mid- to long-term loans with Italian or foreign banks or qualifying financial institutions). The term “listed” refers to a listing on the Italian exchange or on an official exchange or a multilateral system for exchange of an EU or EEA country. The 26% rate applies to interest derived by residents and nonresidents from corporate bonds and similar instruments and from loans in the case of resident individuals and nonresident recipients, in general. The 26% rate also applies as a final tax to interest paid to residents on bank accounts and deposit certificates. The rate applicable to interest paid on treasury bonds issued by the Italian government and by approved-list countries is reduced to 12.5%. For resident individuals carrying on business activities in Italy and resident companies, interest withholding taxes are advance payments of tax.

In all other cases, the withholding taxes are final taxes. Tax treaties may also provide for lower rates. For further details, see Section B.

I ta ly 893 (f)

No withholding tax is imposed on interest and royalties paid between associated companies of different EU Member States if certain conditions are met.

For details, see Section B. Similar treatment may apply to interest payments to Swiss companies under the EU-Switzerland treaty. (g) The withholding tax rate of 30% applies to royalties paid to nonresidents.

However, in certain circumstances, the tax applies on 75% of the gross amount, resulting in an effective tax rate of 22.5%. These rates may be reduced under tax treaties. (h) Loss carryforwards are allowed for corporate income tax purposes only (not for IRAP). Losses may be carried forward indefinitely. Losses can generally be used against a maximum amount of 80% of taxable income, with an exception made for those incurred in the first three years of an activity, which can be used against 100% of taxable income. Anti-abuse rules may limit loss carryforwards.

B. Taxes on corporate income and capital gains Corporate income tax. Resident companies are subject to corpo-

rate income tax (imposta sul reddito delle società, or IRES) on their worldwide income (however, effective from the 2016 fiscal year, an elective branch exemption regime is available; see Section E). Under new rules, effective from 1 January 2024, a resident company is a company that has any of the following located in Italy for the majority of the tax year: • Its registered office • Its place of effective management (that is, where the main and most strategic decisions concerning the whole legal entity are taken in a stable and coordinated manner) • Its place of day-by-day management Unless they are able to prove the contrary, foreign entities controlling an Italian company are deemed to be resident for tax purposes in Italy (so-called “Esterovestizione”) if either of the following conditions is satisfied: • The foreign entity is directly or indirectly controlled by Italian resident entities or individuals.

• The majority of members of the board of directors managing the foreign entity are resident in Italy.

Nonresident companies are subject to IRES on their Italian-source income only.

Rates of corporate income tax. The 2023 corporate tax rate is 24%. A 3.5% surcharge applies to banks and other financial entities for which the aggregate corporate tax rate is 27.5%.

Banks, insurance and financial entities are not subject to the general 30% Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) limitation discussed in Limitations on interest deductions in Section C. In particular, banks and financial intermediaries (as defined by Article 162-bis of the Italian Consolidated Law on Income Tax (Testo Unico delle Imposte sui Redditi, or TUIR) are allowed to deduct 100% of their net interest expenses, while insurance companies, parent companies of insurance groups, qualifying asset management companies and qualifying brokerage companies (Società di Intermediazione Mobiliare, or SIMs) are allowed to deduct 96% of their net interest expenses.

Local tax. Resident and nonresident companies are subject to a

regional tax on productive activities (imposta regionale sulle attività produttive, or IRAP) on their Italian-source income. For manufacturing companies, IRAP is imposed at a standard rate of

894 I ta ly

3.9% on the “net value of production” (see below). However, different rates apply to the following: • Corporations and entities granted concession rights other than those running highways and tunnels: 4.2% • Banks, other financial entities and holdings (that is, companies whose main or exclusive activity is holding shares in other companies): 4.65% • Insurance companies: 5.9% • Public administration entities performing business activities: 8.5% In addition, each of the 20 Italian regions may increase or decrease the rate of IRAP by a maximum of 0.9176 percentage point, and companies generating income in more than one region are required to allocate their tax base for IRAP purposes among the various regions in the IRAP tax return.

The IRAP tax base is the “net value of production,” which is calculated by subtracting the cost of production from the value of production (that is, in general, revenue less operating costs). The IRAP calculation must take into account the profit-and-loss scheme contained in provisions introduced by Legislative Decree No. 139/2015, as well as the corresponding tax provisions expressly applicable to IRAP, which were introduced by Law Decree No. 244/2016. Certain deductions are not allowed for IRAP purposes, such as the following: • Bad debt losses.

• Labor costs (excluding certain compulsory social contributions and a fixed amount of the wages, in application of the so-called Cuneo Fiscale). However, under the 2015 Budget Law, labor costs incurred for employees hired on a permanent basis are fully deductible for IRAP purposes, beginning with the fiscal year including 31 December 2015. However, insurance companies, qualifying holding companies and qualifying brokerage companies (SIMs) can deduct 96% of interest expenses and are taxed on 100% of interest income.

In addition, special rules for the calculation of the tax base for IRAP purposes apply to banking institutions, insurance companies, public entities and noncommercial entities.

Capital gains

Resident companies and nonresident companies with a permanent establishment in Italy. In general, capital gains derived by resident companies or nonresident companies with a permanent establishment (PE) in Italy are subject to IRES and IRAP (gains derived from sales of participations and extraordinary capital gains derived from transfers of going concerns are excluded from the tax base for IRAP purposes). Capital gains on investments that have been recorded in the last three financial statements as fixed assets may be electively taxed over a maximum period of five years for IRES purposes.

Italian corporate taxpayers (that is, companies and branches) may benefit from a 95% participation exemption regime (that is, only 5% is taxable) for capital gains derived from disposals of Italian or foreign shareholdings that satisfy all of the following conditions:

I ta ly 895

• The shareholding has been classified in the first financial statements closed during the holding period as a long-term financial investment.

• The Italian parent company holds the shareholding for an uninterrupted period of at least 12 months before the disposal.

• The subsidiary has been carrying out uninterruptedly through the last three financial years prior to the year of the disposal an active business activity (real estate companies are assumed not to be carrying on a business activity; therefore, they can satisfy this requirement only under certain limited circumstances).

• The subsidiary must have not been resident in a low-tax jurisdiction uninterruptedly as of the beginning of the holding period or, under certain circumstances, through the last five years (unless the taxpayer can prove, also by way of an advance tax ruling, that the subsidiary was actually subject to a congruous level of taxation). For additional information regarding gains from low-tax participations, see Dividends).

In general, capital losses on participations are deductible except for an amount equal to the exempt portion of any dividends received with reference to such participations during the 36 months preceding the sale. An exception also exists for capital losses on participations that would benefit from the 95% participation exemption, which are 100% nondeductible.

Nonresident companies without a PE in Italy. Most tax treaties prevent Italy from levying tax on nonresidents deriving capital gains from the sale of Italian participations (exceptions are made for those cases in which treaties allow Italy to levy tax under qualifying circumstances and if the value of the company is mostly represented by real estate property).

If no treaty protection is available, effective from 2019, capital gains derived by a nonresident entity from the transfer of any substantial participations in Italian companies and partnerships are subject to a 26% substitute tax.

A “substantial participation” in a company listed on a stock exchange requires more than 2% of the voting rights at ordinary shareholders’ meetings or 5% of the company’s capital. For an unlisted company, these percentages are increased to 20% and 25%, respectively.

Effective from 2024, the 2024 Budget Law has extended such domestic participation exemption regime to capital gains from substantial participations derived by nonresident companies without an Italian PE, residing in the EU or in certain EEA jurisdictions with an exchange-of-information clause in place with Italy (Iceland and Norway have this clause; Liechtenstein recently signed a treaty with Italy [including an exchange-ofinformation clause] that has not yet been ratified).

As long as the participation exemption prerequisites required for Italian companies are met by EU and qualifying EEA companies, the latter is subject to a 26% foreign capital gain tax computed only on 5% of the relevant gain (that is, 95% exemption).

Therefore, the effective tax rate is 1.3%. EU. Qualifying EEA residents are allowed to offset 5% of the gain with any capital loss incurred from the disposal of participations qualifying for

896 I ta ly

the participation exemption regime. Any excess capital loss can be carried forward for five fiscal years.

Capital gains on “non-substantial participations” are also subject to 26% source taxation. However, certain exemptions to the 26% rate may apply under domestic law, such as for the following: • Nonresidents (including persons from a low-tax jurisdiction) selling listed shares • Nonresident shareholders resident in approved-list jurisdictions (that is, with which Italy has a full exchange-of-information clause in place) under specified circumstances The 2021 Budget Law has introduced a capital exemption regime for selected EU/EEA investment funds.

The 2023 Budget Law has introduced capital gain taxation for indirect transfers of Italian real estate and Italian companies owning Italian real estate under certain limited circumstances.

Administration. Income tax returns for companies with a calendar year must be filed by 30 September of the following year. Income tax returns for companies with a non-calendar year must be filed by the end of the ninth month of the following year. Such deadlines were introduced by Legislative Decree No. 1/2024. Prior to such change, the tax filing deadlines were, respectively, 30 November of the following year and the end of the 11th month of the following year. Companies must make advance payments of their corporate and local tax liability based on a forecast method or a specified percentage of the tax paid for the preceding year.

IRES and IRAP must be paid in accordance with the following schedule: • The first advance payment due for the current fiscal year, amounting to 40% of the tax paid for the previous year, must be paid by the same date as the balance due for the previous fiscal year (last day of the sixth month following the end of the previous fiscal year).

• The second advance payment of 60% must be paid by the last day of the 11th month following the end of the fiscal year.

• The balance payment must be paid by the last day of the sixth month following the end of the fiscal year.

Exceptions apply to companies subject to the synthetic indexes of reliability (indici sintetici di affidabilità fiscale, or ISA).

Statute of limitations. The 2016 Budget Law introduced a change to the statute of limitations rules. Under the new measures, a company may be subject to a tax assessment up to the end of the fifth year following the year of filing of the relevant tax return (the previous term was the fourth year following the year of the filing of the tax return). In addition, the statute of limitations is now extended to seven years for a failure to file any tax return (the previous term was five years). The 2016 Budget Law repealed the doubling of the statute of limitations in the case of criminal tax investigations. The new rules apply to tax assessments issued with reference to the 2016 fiscal year and subsequent years.

Law Decree No. 193/2016 introduced new provisions with respect to the correction of tax returns. To correct mistakes or omissions,

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including those related to increased or reduced taxable income, tax debts or tax credits, taxpayers may now submit an amending return to the Revenue Agency before the statute of limitations period expires (that is, before 31 December of the fifth year following the year in which the relevant tax return is filed). Any arising tax credits can then be offset against other amounts due, subject to certain conditions.

Tax rulings. Several tax ruling procedures are available in Italy.

The following are the main categories of rulings: • Ordinary ruling (interpello ordinario), concerning the application of statutory provisions with objectively unclear interpretations • Probative ruling (interpello probatorio), concerning the valuation and the fulfillment of the requirements necessary to qualify for specific tax regimes • Anti-abuse ruling (interpello antiabuso), concerning the application of the abuse of law legislation to actual cases • Exempting ruling (interpello disapplicativo), concerning the relief from application of specific anti-avoidance rules (for example, limitations to deductions or tax credits) None of the mentioned rulings is mandatory under Law 212/2000 (taxpayers’ bill of rights) as modified by Legislative Decree No. 219/2023.

Advance Tax Agreements for Companies with International Operations. The scope of the Advance Tax Agreement for Companies with International Operations (commonly referred to also as the “International Ruling”) includes the following: • Transfer-pricing issues (through the conclusion of advance pricing agreements [APAs]) • Cross-border flow matters • Attribution of profits to domestic and foreign PEs • Existence of PEs • Agreements on the tax basis of assets in the case of inbound and outbound migrations In principle, the International Ruling is valid for five years, which consists of the year in which it is signed and the following four years, to the extent that the underlying factual and legal circumstances remain unchanged.

During the period of validity of the agreement, the tax authorities may exercise their power of scrutiny only with respect to matters that are not covered in the agreement.

Rollback effects are possible. Also, under the 2021 Budget Law, an APA may cover all the previous fiscal years for which the statute of limitations has not yet expired. However, the law requires that the circumstances under which the APA was reached are likewise applicable to the previous fiscal years and that no investigations were started or tax assessments were noticed for the same fiscal years with respect to the issues subject to the APA. In addition, in the context of a bilateral or multilateral APA, this “extended rollback” is allowed, provided that the foreign competent authorities agree to extend the APA to the previous fiscal years.

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A fixed fee amount, which may vary based on the turnover of the group, is required for filing a bilateral and multilateral APA ruling request before the competent Italian tax authorities.

Advance tax ruling for new investments. Another type of ruling is available for investments of at least EUR15 million that have a significant and durable impact on employment with respect to the particular business activity.

The ruling provides the taxpayer an advance confirmation of the tax treatment of the entire investment plan (including the various envisaged transactions to achieve the plan) as well as, if needed, assurance on whether a going concern is formed. In addition, the ruling may also confirm the absence of any abusive behaviors, the existence of prerequisites to exclude the application of anti-avoidance provisions or recognition of access to specific tax regimes.

Taxpayers conforming to the ruling response may also take advantage of the Cooperative Compliance Program (see Cooperative Compliance Program in Section C), regardless of their turnover threshold.

Dividends. Dividends distributed to Italian entities and Italian PEs of foreign companies are 95% excluded from corporate taxation regardless of the source (domestic or foreign) of such dividends and are taxable on a cash basis.

Dividends sourced in low-tax jurisdictions are taxed according to the following rules: • Dividends derived from direct participations in low-tax subsidiaries are fully taxed.

• Dividends derived indirectly through controlled foreign approved-list subsidiaries with low-tax participations are fully taxed.

• Dividends sourced in a low-tax country may obtain 95% ordinary exemption treatment if the taxpayer can document that the participation in the foreign entity did not lead to an allocation of income to countries or territories with a privileged tax regime.

• Low-tax dividends are 50% excluded from corporate taxation if the taxpayer can document that the foreign entity carried out as its main activity an actual industrial or commercial activity in the relevant market or territory. In this case, the Italian company may also benefit from a 50% foreign tax credit on the foreign taxes paid by the subsidiary.

• Dividends accrued during any fiscal year before 2015 and paid by a low-tax entity in or after 2015 may obtain 95% exclusion treatment provided that the entity was considered approvedlisted under the pre-2015 regime.

The definition of low-tax jurisdiction was amended by Legislative Decree No. 142/2018, which implements the EU Anti-Tax Avoidance Directive (ATAD) according to which foreign subsidiaries are considered low-tax if they are subject to either of the following: • An effective level of income taxation lower than 50% of the Italian corporate income tax (IRES) rate had the company been resident in Italy • A nominal tax rate lower than 50% (also considering tax rates resulting from special local tax regimes) of the Italian corporate

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income tax (IRES) rate in the event that the foreign subsidiary is not controlled by the Italian parent (for example, less than 50% participation) Dividends distributed by Italian companies to nonresident companies without a PE in Italy are subject to a 26% withholding tax (double tax treaties may provide for lower rates). Nonresidents may obtain a refund of dividend withholding tax equal to the amount of foreign tax paid on the dividends, but the maximum refund equals 11/26 of the withholding tax paid. Dividends paid

by Italian entities (out of profits accrued in the fiscal year following the one in progress on 31 December 2007 and in subsequent fiscal years) to entities established in an EU Member State or in an EEA country included in the approved list are subject to a reduced withholding tax rate of 1.2%. If a treaty withholding tax rate or the domestic 1.2% rate applies, the 11/26 tax refund cannot be claimed.

As a result of the implementation of the EU Parent-Subsidiary Directive (Directive 90/435/EEC), companies from EU Member States that receive dividends from Italian companies may be exempted from the dividend withholding tax or obtain a refund of the tax paid if they hold at least 10% of the shares of the payer for at least one year. A similar provision is available for Swiss recipients under certain circumstances on the basis of Article 15 of the EU-Switzerland agreement of 2004.

For nonresident companies with a PE in Italy, dividends may be attributed to the Italian PE for tax purposes. In this case, the dividend is taxed at the level of the PE, and no withholding tax applies.

Effective from the 2021 fiscal year, Italian-source dividends paid to selected EU/EEA investment funds benefit from a dividend withholding tax exemption.

Effective from the 2021 fiscal year, 50% of dividends paid to Italian non-commercial entities or Italian PEs of foreign noncommercial entities are excluded from taxation (previously fully subject to tax).

The 2023 Budget Law introduced a new rule for a voluntary oneoff reduced taxation on undistributed earnings of foreign subsidiaries subject to low-tax regimes. The new rule provides for a 9% transition tax (30% for individual entrepreneurs) computed on qualifying undistributed earnings. As an alternative to the 9% tax, companies with control shareholdings may avail of a further reduced 6% transition tax under the following conditions: • The foreign earnings should be concretely repatriated by the deadline for the income tax balance payment for the 2023 fiscal year (that is, generally 30 June 2024 for calendar-year entities) • The Italian company should set aside the repatriated earnings to a special equity reserve and keep them for at least two years.

Both the 9% (or 30% for qualifying individuals) and the 6% transition tax elections should be available only with reference to qualifying earnings, which are earnings undistributed as of the date of entry into force of the new rule (purportedly 1 January 2023), provided that such earnings result from the 2021 financial statements of the relevant subsidiaries (or from the last financial

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statements closed before 1 January 2022 for non-calendar-year entities). Such one-off election must be made in the 2022 tax return (generally to be filed by November 2023).

Withholding taxes on interest and royalties. Under Italian domes-

tic law, a 26% withholding tax is imposed on loan interest paid to nonresidents. Lower rates may apply under double tax treaties.

A 30% withholding tax applies to royalties (including rent for industrial equipment) paid to nonresidents. In certain circumstances, the tax applies to 75% of the gross amount, resulting in an effective tax rate of 22.5%. Lower rates may apply under double tax treaties.

As a result of the implementation of the EU Interest and Royalty Directive (Directive 2003/49/EC), interest payments and qualifying royalties paid between “associated companies” of different EU Member States are exempt from withholding tax. A company is an “associated company” of a second company if any of the following circumstances exist: • The first company has a direct minimum holding of 25% of the voting rights of the second company.

• The second company has a direct minimum holding of 25% of the voting rights of the first company.

• An EU company has a direct minimum holding of 25% of the voting rights of both the first company and the second company.

Under the EU directive, the shareholding must be held for an uninterrupted period of at least 12 months. If the 12-month requirement is not satisfied as of the date of payment of the interest or royalties, the withholding agent must withhold taxes on interest or royalties. However, if the requirement is subsequently satisfied, the recipient of the payment may request a refund from the tax authorities.

To qualify for the withholding tax exemption, the following additional conditions must be satisfied: • The recipient must be a company from another EU Member State that is established as one of the legal forms listed in Annex A of the law.

• The company must be subject to corporate tax without being exempt or subject to a tax that is identical or similar.

• The recipient must be the beneficial owner of the payment.

An interest and royalty regime similar to the abovementioned Directive 2003/49/EC applies under certain circumstances to recipients residing in Switzerland on the basis of Article 15 of the EC-Switzerland tax treaty of 2004.

Domestic withholding taxes on interest and royalties may be reduced or eliminated under tax treaties.

An exemption also applies to interest derived by nonresidents on the approved list under certain circumstances (see footnote [e] in Section A).

Tax on financial transactions. A domestic tax on financial transac-

tions (so-called “Tobin Tax,” which is also known as the “Italian Financial Transaction Tax”) is imposed on certain financial transactions regardless of where the transactions are executed and the

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nationalities of the parties. The tax is imposed on the following types of transfers: • Transfers of shares and participating financial instruments issued by Italian resident entities (including the conversions of bonds into shares but excluding the conversion of bonds into newly issued shares in the case of the exercise of options of existing shareholders) • Transfers of other instruments representing the above shares and participating financial instruments • Derivatives transactions that have as a main underlying asset the above shares or participating financial instruments • Transactions in “derivative financial instruments” in shares and participating financial instruments or in such instruments whose value depends mostly on the value of one or more of the above financial instruments • Transactions in any other securities that allow the purchase or sale of the above shares and participating financial instruments or transactions that allow for cash regulations based on the shares The tax on financial transactions also applies to high-frequency trading transactions executed on Italian financial markets if conditions listed in the Ministerial Decree issued on 21 February 2013 are met. Specific exemptions and exclusions are also provided by this decree (for example, the tax does not apply to new issues of shares or on intercompany transactions).

The tax is levied at the following rates, which depend on the type of transaction and relevant market: • Transactions in shares and participating financial instruments are subject to a 0.1% tax if executed on a regulated market or a multilateral trading facility established in an EU Member State or in an EEA Member State allowing an adequate exchange of information with Italy. The rate is 0.2% in all other cases.

• Transactions in derivatives and other financial instruments relating to shares and participating financial instruments are subject to a fixed tax ranging from EUR0.01875 to EUR200, depending on the type of instrument and the value of the agreements. If derivative contracts are executed on a regulated market or multilateral trade facility, the tax is reduced to 20% of these fixed amounts.

• High-frequency trading transactions are subject to a 0.02% tax on the counter-value of orders automatically generated (including revocations or changes to original orders). The tax is applied in addition to the tax on financial transactions due on transfers of shares and participating financial instruments as well as on transactions in the relevant derivative instruments.

The tax on financial transactions on share transactions is due from the transferee only, while the tax applicable to transactions in derivatives is due from each party to the transaction.

The tax payment must be made in accordance with the following rules: • By the 16th day of the month following the month in which the transfer of the ownership occurred (if effected through the Centralized Management Company [Società di Gestione

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Accentrata], by the 16th day of the second month following the transaction date) for the following: — Shares and participating financial instruments issued by Italian resident entities — Instruments representing such shares and participating financial instruments • By the 16th day of the month following the month in which the contract is concluded (if effected through the Centralized Management Company, by the 16th day of the second month following the transactions date) for the following: — Derivatives that have as a main underlying asset the above shares or participating financial instruments — “Derivative financial instruments” in shares and participating financial instruments — Instruments whose value depends mostly on the value of one or more of the above financial instruments — Other securities that allow the purchase and sale of the above shares and participating financial instruments or that allow for cash regulations (settlements) based on such financial instruments • By the 16th day of the month following the month in which the annulment or amending order is sent for the high-frequency trading transactions executed on Italian financial markets Digital Services Tax. The 2020 Budget Law enacted a Digital Services Tax (DST) immediately effective as of 1 January 2020 by building on the DST provision that was contained in the 2019 Budget Law but that never entered into force as result of the absence of a required implementing decree.

The DST is an indirect tax (that is, not eligible for double tax treaty protection) and is applied at a rate of 3% on revenues deriving from the supply to third parties of the following “digital servicers:” • Placement on a digital interface of an advertisement targeted at users of that interface • Making available to users a multi-sided digital interface that allows the users to find other users and to interact with them and that may also facilitate the provision of the underlying supply of goods or services directly between users • Transmission of data collected about users and generated from users’ activities on digital interfaces The DST is imposed on resident and nonresident enterprises that during a fiscal year (to be assumed as the calendar year), individually or at group level, realized both of the following: • An amount of revenue not lower than EUR750 million • An amount of revenue derived from digital services realized in Italy not lower than EUR5,500,000 Revenues from the above digital services are deemed to be derived within Italy if the user (that is, the relevant device) is located in Italy at a qualifying point in time and on the basis of specific nexus criteria depending on the type of service.

Exit tax. The following transactions qualify as taxable events in Italy: • The transfer of tax residence abroad • The transfer of assets on cross-border mergers and demergers

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• The transfer of assets from a resident company to a foreign exempt PE (a foreign PE for which the Italian head office had opted for the branch exemption regime) • The transfer of assets from an Italian PE to the foreign headquarters or to other PEs As a result, any unrealized capital gains must be computed on the basis of the fair market value principle and taxed immediately.

Any of such transfers is not considered a taxable event only to the extent that the assets related to the Italian business remain attributed to an Italian PE. As an alternative to an immediate levy, Italian companies shifting their tax residence (or undergoing any of the abovementioned cross-border reorganizations or transfers of assets) to other EU or EEA countries with which Italy has a full tax information exchange agreement in place may elect to spread the payment of the exit tax through five annual installments.

Inbound migration. The tax migration of companies from an approved-list jurisdiction to Italy entails the tax step-up of the company’s assets and liabilities at fair market value.

For entities migrating to Italy from low-tax jurisdictions, the tax basis of the assets must be agreed to in advance through an advance ruling (see Administration) or otherwise it must be considered equal to the lower of the acquisition cost, the book value or the fair market value, with the tax basis of the liabilities amounting to the higher of these items.

Onshoring income exemption. Starting from 2024, income derived

through an existing business moved to Italy from a foreign jurisdiction, other than EU or EEA countries, can be 50% exempt from corporate income tax and IRAP. The exemption is limited to income derived from the onshoring of businesses that, during at least the previous 24 months, were not located in Italy. From a timing perspective, the exemption applies for the financial year of the migration and the following five financial years.

The above income exemption is subject to recapture (with interest but without penalties) if the business is migrated, even partially, from Italy to any other foreign jurisdictions (including EU and EEA countries) in the five years following the expiration of the regime or 10 years for large enterprises as defined by the EU Recommendation No. 361 of 6 May 2003 (that is, with at least 250 employees plus a turnover of at least EUR50 million or, alternatively, total assets of at least EUR43 million value).

The tax incentive is subject to the EU Commission’s approval under the relevant EU State-aid principles.

Patent Box Regime. The 2015 Budget Law introduced a favorable tax regime for income generated through the use of qualified intangible assets, such as industrial patents, models and designs capable of being legally protected, know-how and other intellectual properties (IPs).

Taxpayers performing activities related to such intangibles are eligible, under a specific election, for a downward adjustment of the IRES and IRAP bases equal to 50% (for 2017 and subsequent years) of the income derived from the use of the qualifying IPs.

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The exemption applies to income earned both from the licensing of the IPs to related or unrelated parties and from the direct exploitation of the asset.

Law Decree No. 146 of 21 October 2021 (converted into law on 17 December 2021) repealed the above-mentioned old patent box regime by shifting from a profit-based incentive (50% exemption) to a cost-based incentive by introducing a super deduction for research and development (R&D) expenses. Under the new incentive the following rules apply: • R&D expenses (other than those incurred with related parties) sustained in relation to qualifying IP may be recognized for tax purposes for an additional amount equal to 110% (that is, for a total 210% deduction) of the relevant expenditure for both IRES and IRAP. • Qualifying R&D costs relate only to copyrighted software, patents, designs and models. (R&D expenses for trademarks and know-how are excluded.)

• If R&D expenses are incurred prior to the creation of a qualifying IP, the extra 110% deduction applies from the fiscal year in which the relevant IP is granted legal protection. The extra deduction includes R&D expenses incurred up to the eighth fiscal year before IP protection is granted.

• The election for the new incentive is irrevocable and lasts for five fiscal years with the possibility of subsequent renewals.

• Penalty protection is available if backup documentation is prepared by the taxpayers.

The 2022 Budget Law clarified that the new incentive is available starting the fiscal year in course as of 31 December 2021 (that is the 2021 fiscal year for calendar-year companies). Accordingly, 2020 is the last fiscal year with reference to which the old patent box regime election could have been made (possibly with a fiveyear validity; that is, up to 2024 at the latest). However, taxpayers who are still waiting for the conclusion of an old patent box ruling (including renewals of prior agreements) may renounce such regime and elect the new incentive, which will start from the year in which the election for the new regime is made and not from the election made for the old regime. Such alternative is not available for fiscal years for which an old patent box ruling (including renewals of prior agreements) is already concluded, or with reference to which taxpayers have elected the selfcomputation method.

Foreign tax relief. A foreign tax credit may be claimed for foreign-

source income. The amount of the foreign tax credit cannot exceed that part of the corporate income tax, computed at the standard rate, that is attributable to the foreign-source income. Accordingly, the foreign tax credit may be claimed up to the amount that results from prorating the total tax due by the proportion of foreignsource income over total income.

If income is received from more than one foreign country, the above limitation on the foreign tax credit is applied for each country (per-country limitation). Excess foreign tax credits may be carried forward or back for eight years.

For corporate groups that elect the worldwide tax consolidation (see Section C), an Italian parent company may consolidate profits

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and losses of its foreign subsidiaries joining the tax group and compute a single group tax liability. Such group tax liability may be offset by a foreign tax credit granted to the resident parent company with respect to taxes paid abroad by foreign subsidiaries that are members of the tax group.

C. Determination of business income General. To determine taxable income, profits disclosed in the

financial statements are adjusted for exempt profits, nondeductible expenses, special deductions and losses carried forward. Exempt profits include interest on government bonds issued on or before 30 September 1986 and income subject to Italian withholding tax at source as a final tax.

The following general principles govern the deduction of expenses: • Expenses are deductible if and to the extent to which they relate to activities or assets that produce revenue or other receipts that are included in income.

• Expenses are deductible in the fiscal year to which they relate (accrual basis rule). Exceptions are provided for specific items, such as compensation due to directors, which is deductible in the fiscal year in which it is paid.

Deductibility of municipal property tax. The municipal property

tax (Imposta Municipale Unica, or IMU) is 100% deductible for corporate income tax purposes (conversely, the property tax is 100% nondeductible for local tax purposes). For further details regarding this tax, see Section D.

Inventories. Inventory is normally valued at the lower of cost or

market value for both fiscal and accounting purposes. For determination of “cost,” companies may select one of the various methods of inventory valuation specifically provided in the law, such as first-in, first-out (FIFO); last-in, first-out (LIFO); or average cost.

Depreciation and amortization allowances. Depreciation at rates not exceeding those prescribed by the Ministry of Finance is calculated on the purchase price or cost of manufacturing.

Incidental costs, such as customs duties and transport and installation expenses, are included in the depreciable base. Depreciation is computed on the straight-line method. Rates for plant and machinery vary between 3% and 15%.

In general, buildings may be depreciated using a 3% annual rate.

Land may not be depreciated. If a building has not been purchased separately from the underlying land, for tax purposes, the gross value must be divided between the non-depreciable land component and the depreciable building component. The land component may not be less than 20% of the gross value (increased to 30% for industrial buildings). As a result, the effective depreciation rate for buildings is 2.4% (2.1% for industrial buildings).

Purchased goodwill may be amortized over a period of 18 years.

Know-how, copyrights and patents may be amortized in accordance with financial statements, but over at least two fiscal years. The amortization period for trademarks is 18 years.

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Research expenses and advertising expenses may be either entirely deducted in the year incurred or written off in equal installments in that year and in the four subsequent years, at the company’s option.

Amortization allowances of other rights may be claimed with reference to the utilization period provided by the agreement.

A tax credit for the purchase of new assets is generally available depending on the nature of the assets, the timing of the purchase and acceptance of the order, and the payment.

For investments in high-tech assets purchased from 2023 to 2025, the tax credit applies as discussed below (different rules apply for previous years).

The following are the percentages for high-tech tangible assets: • 20% of the purchase cost for investment up to EUR2.5 million • 10% of the purchase cost for investment from EUR2.5 million up to EUR10 million • 5% of the purchase cost for investment from EUR10 million up to EUR20 million (up to EUR50 million for specific green transition investments) The following are the percentages for high-tech intangible assets: • 15% of the purchase cost for investment made in 2024 with a maximum annual investment amount of EUR1 million • 10% of the purchase cost for investment made in 2025 with a maximum annual investment amount of EUR1 million The tax credit applies in three equal annual installments as of the year in which the assets come into operation (and have the requirements provided by the Industry 4.0 Plan).

Furthermore, a third-party sworn appraisal is required in the case of any Industry 4.0 Plan purchase (high-tech and software related) with a value higher than EUR300,000.

Extra deduction for new hires. Under Legislative Decree No. 216/2023, companies that have carried out business activities in Italy through 2023 may deduct for IRES purposes 120% of the labor costs in relation to new hires in 2024 (up to 130% for certain categories of employees).

The extra deduction is granted is both of the following conditions are satisfied: • The number of employees hired on a permanent basis in 2024 is greater than the average of the same category of employees in 2023 (employment decreases in controlled companies should be factored into the computation).

• The number of all the employees (including temporary employees) at the end of the 2024 is greater than the 2023 average.

The eligible cost for the increased tax deduction (20% or 30% depending on the case) is the lower of the cost for the new hires or the increase in the labor costs based on the profit and loss statement.

Step-up of Italian participations. The Italian government has

revamped a one-off opportunity for resident individuals and nonresident entities to elect for a tax step-up of participations in

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unlisted Italian companies held as of 1 January 2024 through the payment of a substitute tax.

The base of the substitute tax equals the value of the participation as of 1 January 2024 and needs to be certified by a sworn appraisal prepared no later than 30 June 2024. The rate of the substitute tax is 16%.

The substitute tax may either be paid in full by 30 June 2024 or through three annual installments beginning 30 June 2024 (with the second and third installments due by 30 June 2025 and 30 June 2026 and subject to an annual 3% interest surcharge).

Tax credit for R&D. A tax credit is available for eligible R&D expenses for the 2024 fiscal year (different rules apply for previous years).

The eligible R&D activities are classified into three categories.

The following are the amounts of the tax credit for each category: • For R&D activities, the tax credit amounts to 10% of the eligible expenses with a maximum annual amount granted to each company of EUR5 million.

• For technological innovation, the tax credit amounts to 5% of the eligible expenses with a maximum annual amount granted to each company of EUR2 million (up to EUR4 million in the case of green transition or if the relevant activity qualifies as a digital innovation under the Industry 4.0 Plan).

• For design activities carried out by companies in the textile and fashion, footwear, eyewear, goldsmith, furniture and ceramics sectors, and for the design and manufacture of new products and samples, the tax credit amounts to 10% of the eligible expenses with a maximum annual amount granted to each company of EUR2 million.

A third-party appraisal is required.

To obtain the benefit with respect to the past years, an amended tax return must be filed with the Italian Revenue Agency, provided that all the other requirements are met.

The tax credit available for R&D activities amounts to 10% from 2023 to 2031 with a maximum annual amount of EUR5 million.

Provisions. The Italian tax law provides a limited number of pro-

visions.

Bad and doubtful debts. A general provision of 0.5% of total trade receivables at the year-end may be made each year until the total doubtful debt provision reaches 5%. Bad debts actually incurred are deductible to the extent they are not covered by the accumulated reserve. In this regard, losses on bad debts are deductible for corporate income tax purposes only if they derive from “certain and precise” elements and if the debtor has been subject to a bankruptcy procedure or insolvency procedure. The Internationalization Decree provides that, effective from the 2015 fiscal year, the deduction for bad debt losses is allowed with respect to foreign bankruptcy and insolvency procedures, to the extent that they are equivalent to the Italian procedures and that the relevant foreign country allows a satisfactory exchange of information. “Certain and precise elements” are deemed to exist if one of the following conditions is met:

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• The bad debt is not more than EUR2,500 (or EUR5,000 in the case of companies having a turnover not less than EUR100 million) and has been unpaid for at least six months.

• The right to collect the credit has expired. Under Article 2946 of the Italian Civil Law, the ordinary right to collect a credit expires after 10 years.

• The credit has been deleted from the financial statements in application of the relevant accounting rules.

For banks and financial entities, Law Decree No. 83/2015 repealed the rules concerning the tax deductibility of bad debt write-downs and bad debt losses arising from the transfer of receivables.

Redundancy and retirement payments. Provisions for redundancy and retirement payments are deductible in amounts stated by civil law and relevant collective agreements.

Limitations on interest deductions. For companies other than banks and other financial entities, the deductibility of net interest expenses is determined in accordance with an Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) test.

Under this test, net interest expenses (that is, interest expenses exceeding interest income) are deductible only up to 30% of EBITDA and the excess can be carried forward indefinitely and used in the fiscal years in which 30% of EBITDA is higher than the net interest expense for the year. The 30% EBITDA rule may also apply at the level of a domestic tax group, meaning that the excess of interest expenses at the level of one entity may be deducted by the group if other members have a corresponding amount of excess EBITDA.

Legislative Decree No. 142/2018 (the ATAD decree) introduced the following amendments, effective from 2019: • Qualifying EBITDA for purposes of the 30% limitation is now computed on the basis of tax relevant figures (and no longer on accounting figures).

• A new definition of interest expenses (based on a concept of substance over form) is introduced. For example, under the new definition, interest expenses capitalized in the cost of purchased goods are now included.

• Excess interest income of any fiscal year can now be carried forward to offset interest expenses in any following fiscal years.

• Excess 30% EBITDA can now be carried forward for five fiscal years only (no limits applied under the old rule).

Under grandfathering rules, the excess interest expenses accrued under the old regime can still be carried forward, and any excess 30% EBITDA computed under the old rules can be used against excess interest expenses on loans signed before 17 June 2016.

Foreign-exchange losses. Gains and losses resulting from the

mark-to-market of foreign currency-denominated debts, credits and securities are not relevant. An exception is provided for those hedged against exchange risk if the hedging is correspondingly marked-to-market at the exchange rate at the end of the fiscal year.

Relief for losses. For corporate income tax purposes only, losses may be carried forward with no time limit and deducted from income of the following periods for a total amount equal to 80%

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of taxable income (or a lower value if the tax-loss amount does not reach 80% of the amount of taxable income for the fiscal year).

Losses incurred in the first three years of an activity may also be carried forward for an unlimited number of tax periods, and the limit of 80% of taxable income does not apply. The three-year time limit is computed from the company’s date of incorporation.

In addition, to qualify for an unlimited loss carryforward, such losses must derive from a new activity; that is, companies within the same group may not have previously carried out the activity.

Restrictions on tax losses carried forward apply if ownership of the company is transferred and if the company changes its activity.

The company resulting from or surviving after a merger may carry forward unrelieved losses of the merged companies to offset its own profits. In general, tax losses carried forward may not exceed the lower of the net equity at the close of the last fiscal year or the net equity shown on the statement of net worth prepared for the merger of each company involved in the merger.

This limitation is applied on a company-by-company basis.

Contributions to capital made in the 24 months preceding the date of the net worth statement are disregarded. Special rules further limit the amount of the losses that can be carried forward.

Additional measures combat abuses resulting from the use of losses with respect to mergers, demergers and the transparency regime (see Consortium relief).

Intragroup transfer of tax losses. Under new provisions introduced by the 2017 Budget Law, it is now possible for Italian resident companies, not being part of a tax group, but connected by at least 20% voting rights and profit share, to transfer tax losses accrued in the first three fiscal years to each other, provided that certain conditions are met.

The transfer must be related to the whole amount of the tax losses for the first three fiscal years of activity. The acquiring company must remunerate the seller for the losses transferred by using the same corporate tax rate of the fiscal year when the tax losses accrued. The remuneration is not subject to tax for the seller.

Limitation on tax attributes carryforward in the case of change of ownership and extraordinary transactions. Tax losses and other tax attributes of a company may not be carried forward if the majority of the shares giving voting rights in the ordinary shareholders’ meeting of that company are transferred (that is, change of control) and if a change of the main business activity carried out by that company takes place, unless a vitality test is met. The vitality test is an anti-avoidance rule aimed at barring the transfer of net operating losses and other attributes (also through an intercompany reorganization) to profitable companies that could offset all or a large part of the companies’ taxable income with the inherited losses and other attributes.

Notional interest deduction. The Italian notional interest deduc-

tion (NID) or allowance for corporate equity (commonly referred to by the Italian acronym ACE) has been repealed as of 1 January 2024. Nevertheless, companies may still carry forward any NID excess without any time limitation.

910 I ta ly Non-operating companies. Italian resident companies and PEs of

nonresident companies are deemed to be “non-operating companies” if the total of their average non-extraordinary revenues (proceeds from the ordinary activities of a company as shown on its financial statements) and increases in inventory are less than the sum of the average of the following during the preceding three years: • 2% of the book value of the company’s financial assets • 6% of the book value of the company’s real estate assets • 15% of the book value of the company’s other long-term assets If the company qualifies as a non-operating company, its taxable income cannot be lower than the sum of the following items (minimum income): • 1.5% of the book value of the company’s financial assets for the year • 4.75% of the book value of the company’s real estate assets for the year • 12% of the book value of the company’s other assets for the year Non-operating companies may not generate tax losses. Previous tax losses (that is, those incurred when the company was operating) cannot be offset against the minimum income. In the (unlikely) event that the taxable income exceeds the minimum, only 80% of the amount exceeding the minimum can be offset.

The income of non-operating companies is subject to corporate income tax at a rate of 34.5% (rather than the ordinary 24% rate).

IRAP (see Section B) also applies.

Non-operating companies that are in a value-added tax (VAT) credit position may no longer take the following actions: • They may not claim such VAT for a refund.

• They may not use the VAT to offset other tax payments due.

• They may not surrender the VAT to other group companies.

• They may not carry forward the VAT. Companies can be exempted from the abovementioned regime, for both income tax and VAT purposes, if they prove to the tax authorities that they were not able to reach the minimum income requirements because of extraordinary circumstances (an advance ruling must be obtained for such a determination). Certain companies are specifically excluded from the non-operating companies’ regime (for example, listed groups, companies with 50 or more shareholders, companies with an amount of business income greater than the total assets value and companies that become insolvent or enter into an insolvency procedure).

Groups of companies. Groups of companies may benefit from tax consolidation and consortium relief. These regimes allow the offsetting of profit and losses of members of a group of companies.

Domestic tax consolidation. Italian tax consolidation rules provide two separate consolidation systems, depending on the residence of the companies involved. A domestic consolidation regime is available for Italian resident companies only. A worldwide consolidation regime, with slightly different conditions, is available for multinationals.

I ta ly 911

To qualify for consolidation, more than 50% of the voting rights of each subsidiary must be owned, directly or indirectly, by the common Italian parent company.

For a domestic consolidation, the election is binding for three fiscal years. However, if the holding company loses control over a subsidiary, such subsidiary must be immediately excluded from the consolidation. The tax consolidation includes 100% of the subsidiaries’ profits and losses, even if the subsidiary has other shareholders. The domestic consolidation may be limited to certain entities, leaving one or more otherwise eligible entities outside the group filing election. Tax losses realized before the election for tax consolidation can be used only by the company that incurred such losses. Tax consolidation also allows net interest expenses (exceeding 30% of a company’s EBITDA) to be offset with excess EBITDA capacity of another group company.

Dividends paid within a domestic consolidation are subject to the ordinary 1.2% tax at the level of the recipient.

Horizontal consolidation. To comply with Case C-40/13 of the Court of Justice of the EU, the Internationalization Decree introduced the possibility of electing a domestic tax consolidation between two or more Italian sister companies with a common parent residing in any EU or EEA country that provides adequate exchange of information with Italy. These new measures are effective from the 2015 fiscal year.

Under these measures, a nonresident parent company can designate an Italian resident subsidiary to elect for a tax-consolidation regime together with each resident company controlled by the same foreign entity.

In addition, the horizontal consolidation may also include Italian PEs of EU and qualifying EEA companies to the extent that the nonresident company with a PE in Italy is controlled by the same parent company.

Consortium relief. Italian corporations can elect consortium relief if each shareholder holds more than 10% but less than 50% of the voting rights in the contemplated Italian transparent company.

Under this election, the subsidiaries are treated as look-through entities for Italian tax purposes and their profits and losses flow through to the parent company in proportion to the stake owned.

These profits or losses can offset the shareholders’ losses or profits in the fiscal year in which the transparent company’s fiscal year ends. Tax losses realized by the shareholders before the exercise of the election for the consortium relief cannot be used to offset profits of transparent companies.

Dividends distributed by an eligible transparent company are not taken into account for tax purposes in the hands of the recipient shareholders. As a result, Italian corporate shareholders of a transparent company are not subject to corporate income tax on 5% of the dividends received (in all other circumstances this would mean an effective tax rate of 1.2%).

The election does not change the tax treatment of dividends distributed out of reserves containing profits accrued before the exercise of the election.

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The consortium relief election is binding for three fiscal years and requires the consent of all the shareholders.

The consortium relief election may be beneficial for joint ventures that are not eligible for tax consolidation because the control test is not met. In addition, the election is also available for nonresident companies that are not subject to Italian withholding tax on dividend payments (that is, EU corporate shareholders qualifying under the EU Parent-Subsidiary Directive). If both EU corporate shareholders qualifying under the EU Parent-Subsidiary Directive and Italian corporate shareholders hold an Italian subsidiary, the EU corporate shareholders would want to elect consortium relief to allow the Italian corporate shareholders to benefit from tax transparency.

Group value-added tax. For groups of companies linked by more than a 50% direct shareholding, net value-added tax (VAT; see Section D) refundable to one group company with respect to its own transactions may be offset against VAT payable by another, and only the balance is required to be paid by, or refunded to, the group.

European VAT Group. The 2017 Budget Law introduces, effective from 1 January 2018, the option for the European VAT Group (as provided by Article 11 of the EU Directive 2006/112/CE) in the Italian VAT law.

Companies included in the European VAT Group are treated as a single VAT taxable person, which means the following: • Transactions carried out between the entities of the group are not subject to VAT. • Transactions carried out between an entity of the group and a third party are treated as performed by the group as a single entity.

• Entities incorporated in Italy should be entitled to elect the group if, while legally independent, they are closely bound one to another by the following financial, economic and organizational links: — Financial link: a minimum corporate participation link must exist between the entities electing for the group (more than 50% of the voting rights).

— Economic link: the entities must perform the same kind of activity or complementary, ancillary and auxiliary activities.

— Organizational link: a link between the decision-making bodies of the entities must exist.

If the election is made, all entities fulfilling the requirements must adhere to the group.

D. Other significant taxes The following table summarizes other significant taxes.

Nature of tax

Value-added tax (VAT), on goods, services and imports Standard rate Other rates

Rate

22% 4%/10%

I ta ly 913 Nature of tax

Municipal tax (Imposta Unica Comunale, or IUC); includes real property tax (Imposta Municipale Unica, or IMU) and tax on garbage disposal (Tassa per Rifiuti, or TARI) IMU; imposed on Italian property’s re-evaluated cadastral value; rates may be modified by municipal authorities; not applicable to principal home; payable by the owner of the real property TARI; imposed on the user

Rate

Various Various

E. Miscellaneous matters Foreign-exchange controls. The underlying principle of the foreignexchange control system is that transactions with nonresidents are permitted unless expressly prohibited. However, payments by residents to foreign intermediaries must be channeled through authorized banks or professional intermediaries. In addition, transfers of money and securities exceeding EUR10,000 must be declared to the Italian Exchange Office. Inbound and outbound investments are virtually unrestricted.

Transfer pricing. Italy imposes transfer-pricing rules on transac-

tions between related resident and nonresident companies. Under these rules, intragroup transactions must be carried out at arm’s length. In principle, Italian transfer-pricing rules do not apply to domestic transactions. However, under case law, grossly inadequate prices in these transactions can be adjusted on abuse-of-law grounds.

No penalty applies as a result of transfer-pricing adjustments if Italian companies complied with Italian transfer-pricing documentation requirements, allowing verification of the consistency of the transfer prices set by the multinational enterprises with the arm’s-length principle.

On 23 November 2020, the Italian tax authorities issued new instructions regarding the content and validity of the elective transfer-pricing documentation in order to adopt the Base Erosion and Profit Shifting (BEPS) Action 13 deliverable.

Such documentation consists of the following documents: • Masterfile • Country-Specific Documentation Transfer pricing documentation (that is, Masterfile and CountrySpecific Documentation) must be drafted in a fashion that fulfills the abovementioned new instructions, according to the Circular Letter issued on 26 November 2021. In addition, to opt for the penalty protection regime, it is required that both the Masterfile and Country-Specific Documentation be signed by the Italian entity’s legal representative or a delegated person by means of an electronic signature and time stamp (marca temporale) no later than the filing of the corporate tax return (statutory deadline being 11 months following the end of the fiscal year).

With respect to such deadline, the Circular Letter clarified the following: • In the case of late or amended annual tax return submitted within 90 days from the original deadline, the Masterfile and

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the Country-Specific Documentation must be signed by electronic signature with a time stamp by the date of effective submission.

• It is possible to communicate late in the amended annual tax return the possession of the transfer pricing documentation provided that it has been prepared, including the affixing of the electronic signature with time stamp, within the term of 90 days from the original deadline.

The Masterfile collects information regarding the multinational group. It must be organized in the following chapters.

Chapter

Information in chapter

1 Description of the group structure 2 Description of the activities carried out by the group, including information concerning main profit generator factors, transaction flows, main intercompany service agreements, main markets, brief functional analysis of the entities of the group describing their contribution to value creation and business restructuring transactions 3 Description of the intangible assets owned by the group 4 Description of the intercompany financial transactions 5 Description of the group financial reports, including consolidated financial statements (to be attached) and a list and summary of any APAs and other tax rulings related to the cross-border allocation of income Under the 2010 instructions, taxpayers could prepare, in certain cases, a Masterfile only in relation to a subgroup, in order to avoid filing the group Masterfile. Such possibility no longer exists, given that the new instructions refer only to group Masterfiles, consistent with the applicable Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines. Also, under the new instructions, more than one Masterfile for each group can be prepared if it is possible to segregate in separate sets different operations and different transfer-pricing policies that are applicable within the same group.

The Country-Specific Documentation contains information regarding the enterprise. It must be organized in the following chapters and annexes.

Chapter

Information in chapter or annex

1 General description of the entity, including information concerning the relevant operating structure and business strategies 2 Intercompany transactions 3 Financial information, including individual financial statements and statements reconciling the Profit Level Indicators used to apply the transfer-pricing methodology with the figures in the annual financial statements

I ta ly 915 Chapter

Information in chapter or annex

Annex 1 Copies of the contractual documentation for each covered transaction Annex 2 Copies of APAs and other cross-border tax rulings of the Italian entity as well as of other companies, if any way linked to the covered transaction.

The transfer-pricing rules described above do not apply to transactions between resident entities.

Decree No. 50 of 2017 replaced the reference to the “fair market value” principle set out in Article 9 of the TUIR for purposes of computing transfer-pricing adjustments.

Under the new wording of Article 110, Paragraph 7 of the TUIR, the transfer-pricing adjustments are determined with reference to the conditions and prices that would have been agreed on by independent entities operating in conditions of free competition and in comparable circumstances, if an increase in income is derived. In other words, the transfer-pricing adjustments should be determined under a free-competition scenario, which is more in line with the OECD guidelines for national legislation.

The negative income tax adjustment under Article 110, Paragraph 7, of the TUIR, can occur in the following circumstances: • In the execution of agreements concluded with the competent authorities of foreign states following the mutual agreement procedure provided under a double tax treaty.

• At the end of the checks carried out as part of the international cooperation activities whose results are shared by states’ participants.

• Following a ruling regarding the taxpayer by a state with which Italy has entered into a double tax treaty that allows an adequate exchange of information and is issued according to the methods and terms provided by the Director of the Revenue Agency, against a positive adjustment and in accordance with the arm’slength principle. A facility exists for the taxpayer to request the activation of the mutual agreement procedure referred to in the first bullet, provided that the conditions are met.

Country-by-Country Reporting. The 2016 Budget Law introduced a new Country-by-Country Reporting (CbCR) obligation for multinational entities. Entities subject to this obligation must submit an annual report indicating the amounts of revenues, gross profits, taxes paid and accrued, and other indicators of effective economic activities.

Italian parent companies of certain groups and certain Italian resident companies controlled by a foreign company are subject to the CbCR obligation.

Italian parent companies are subject to the CbCR obligation if their groups meet the following conditions: • They are required to submit group consolidated financial statements. These are groups that exceed two of the following two of the following thresholds for two consecutive years: — Total assets of EUR20 million — Turnover of EUR40 million — 250 employees

916 I ta ly

• They had consolidated annual turnover in the preceding fiscal year of at least EUR750 million.

• They are not controlled by other entities.

Italian resident companies controlled by a foreign company are subject to the CbCR obligation if they are required to submit group consolidated financial statements in a country where the CbCR does not apply or in a country that does not allow exchange of information regarding the CbCR. In the case of a failure to submit a report or an incomplete submission of a report, penalties apply from EUR10,000 to EUR50,000.

On 8 March 2017, the Italian Ministry of Economy and Finance released the Ministerial Decree with implementation details for the CbCR process for Italian entities belonging to Multinational Enterprise (MNE) groups.

Cooperative Compliance Program. An elective Cooperative

Compliance Program (CCP) is in place for selected taxpayers that have adopted an adequate internal audit model to manage and control their tax risks with the purpose of promoting communication and cooperation between taxpayers and tax authorities (so-called Tax Control Framework, or TCF). This framework must be certified by a qualified professional.

Recent new rules provide for the gradual reduction of the access threshold, with the regime reserved for taxpayers that achieve the following turnover or revenue: • As of 2024, not less than EUR 750 million • As of 2026, not less than EUR 500 million • As of 2028, not less than EUR 100 million The regime is also available to companies not meeting the above requirements that belong to a domestic tax consolidation group in which at least one entity in the group meets the requirements, provided that an integrated system of tax risk detection, measurement, management and control is adopted for all companies in the group.

Regardless of revenue or turnover, companies that intend to implement the ruling of the Italian tax authorities with reference to the “new investments ruling” are also eligible for the regime.

The CCP may even apply to financial years prior to the access to the regime with a 50% reduction of the penalties for any risk fully communicated within 120 days from the admission to the regime, provided that no tax audit or tax assessments have been started or noticed with respect to the taxpayer.

Taxpayers that adhere to the CCP can benefit from certain advantages such as the following: • Agreements on tax positions before the filing of the return • Quicker rulings (45 days) • No need for guarantees for tax refunds • Reduction by two years of the statute of limitations for the issuance of tax assessments (by three years, under certain circumstances) • Elimination of administrative and certain criminal penalties if the relevant tax risks are fully disclosed in advance

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Reduced penalties are available even absent the satisfaction of requirements to apply for cooperative compliance for companies electing to draft and communicate a TCF to the Italian tax authorities. The election is irrevocable for two years, and the penalty relief will cover any tax risk communicated in advance through the filing of a tax ruling, with the application of onethird of the administrative penalties ordinarily applicable and the exclusion of certain criminal liabilities.

Taxpayers that file a request to adhere to the CCP should receive an answer within 120 days.

In the case of a positive answer, admission to the regime is effective as of the fiscal year in which the request is filed and continues until the taxpayer files an end notice.

The tax authorities may exclude taxpayers from the CCP if during any of the years following the taxpayers’ admission, the taxpayers no longer meet the CCP’s requirements.

Taxpayers should adopt a collaborative attitude with Italian tax authorities by timely disclosing transactions that may be deemed to be aggressive tax planning, by promptly responding to any request and by promoting a corporate culture adhering to principles of fairness and respect of tax laws.

Controlled foreign companies. The income of a controlled foreign

company (CFC) is attributed to the Italian parent under a flowthrough taxation principle if both of the following circumstances exist: • The foreign subsidiary is subject to an effective tax rate lower than 50% of the applicable Italian corporate income tax rate.

• More than 1/3 of the foreign subsidiary’s revenues qualify as passive income, such as dividends, interest, royalties, and financial lease, insurance, bank and other financial activity income, as well as income derived from the sale of goods or provision of low-value services to related parties.

Starting from 2024, Legislative Decree No. 209/2023 introduced a simplified minimum 15% effective tax rate test based on the accounting results of the CFC. For this purpose, the CFC’s financials must be certified by locally authorized professional auditors, and the findings of the CFC’s audit must be used for the purpose of the certified stand-alone or consolidating accounts of the parent.

The simplified minimum 15% effective tax rate test is based on the ratio between the foreign tax burden (current and deferred taxes) and the foreign accounting earnings before taxes. If the effective tax rate is lower than 15%, the Italian controlling company may still avoid the CFC income imputation by proving that the latter is subject to a tax burden at least equal to 50% of the theoretical Italian one. The theoretical 50% effective tax rate test remains mandatory for CFCs with financials that have not been certified by authorized auditors.

As an alternative to the simplified minimum 15% effective tax rate test, Italian companies may elect for a further simplified regime requiring a mandatory minimum payment on a three-year basis. As a precondition to elect this simplified CFC taxation

918 I ta ly

regime, the CFC’s financials must be certified by locally authorized professional auditors.

If elected, this regime provides for a substitute tax at 15% applied on the local adjusted accounting profits (that is, grossed up by current and deferred taxes, as well as by assets’ write-offs and provisions). The election made by the Italian parent company involves all CFCs with more than one-third passive income and remains mandatory for a three fiscal year lock-in period (automatically renewable unless explicitly revoked) regardless of the minimum 15% effective tax rate test.

A CFC is deemed to be controlled by an Italian company if either of the following circumstances exist: • Direct or indirect control is exercised in the foreign company’s shareholders meeting, including by way of trust companies or intermediaries, through the majority of voting rights or a qualifying influence under Article 2359 of the Italian Civil Code.

• Over 50% of the participation in the foreign company’s profits is held either directly or indirectly by way of other companies controlled under Article 2359 of the Italian Civil Code, including by way of trust companies or intermediaries.

CFC rules also apply to a foreign PE of a CFC, a foreign exempt PE of the Italian controlling company or an Italian subsidiary of the Italian controlling company.

An advance ruling may be electively obtained to demonstrate that the foreign entity (or PE) carried out an actual industrial or commercial activity.

Since the ruling is not mandatory, the conditions required for the exemption can also be proved during the tax audit process.

Accordingly, tax assessments concerning the CFC regime cannot be issued if the taxpayer has not been given the opportunity to provide evidence of this exemption within 90 days after the clarification request.

In the absence of a positive ruling (and provided that the flowthrough taxation has not been applied), the Italian parent needs to disclose in its tax return the ownership of the shares triggering the application of the CFC rules. Specific penalties of up to EUR50,000 apply for a failure to make such disclosure.

Anti-avoidance legislation. A general anti-avoidance rule is set forth by Article 10-bis of Law 212/2000 and applies to all direct and indirect taxes with the exclusion of custom duties.

The rule defines “abuse of law” as “one or more transactions lacking any economic substance which, despite being formally compliant with the tax rules, achieve essentially undue tax advantages.”

Transactions are deemed to lack economic substance if they imply facts, actions and agreements, even related to each other, that are unable to generate significant business consequences other than tax advantages. As indicators of lack of economic substance, the anti-avoidance rule refers to cases in which inconsistency exists between the qualification of the individual transactions and their legal basis as a whole and cases in which the

I ta ly 919

choice to use certain legal instruments is not consistent with the ordinary market practice.

Tax advantages are deemed to be undue if they consist of benefits that, even if not immediate, are achieved in conflict with the purpose of the relevant tax provisions and the principles of the tax system.

Notwithstanding the above, the anti-avoidance rule establishes that no abuse of law exists if a transaction is justified by nonnegligible business purposes (other than of a tax nature), including those aimed at improving the organizational and managerial structure of the business.

Taxpayers can submit ruling requests to the Italian authorities to verify whether any envisaged or realized transactions are considered abusive. The application must be filed before the deadline for the relevant tax return submission or before the satisfaction of other tax obligations associated with the transactions.

Anti-hybrid provision. Law Decree No. 142/2018 implemented

the EU ATAD into domestic law.

Italian anti-hybrid rules apply as of the fiscal year starting after the one ongoing on 31 December 2019 (that is, as of 2020 for calendar-year companies). Rules applying to (Italian) reverse hybrids apply as of the fiscal year starting after the one ongoing on 31 December 2021 (that is, as of 2022 for calendar-year companies).

The Italian ATAD Decree applies to IRES and the Italian individual income tax (imposta sul reddito delle persone fisiche, or IRPEF), but it does not apply to IRAP. With reference to foreign jurisdictions, the Italian anti-hybrid rules take into consideration any tax covered by a bilateral tax treaty in place with the relevant country. However, if the applicable treaty also includes local taxes (that is, regional or cantonal), the anti-hybrid rules will only consider taxes applied at the highest governmental level (for example, at the federal level). Absent a bilateral tax treaty, reference is made to taxes with the same or equivalent nature of the Italian taxes applied at the highest governmental level.

Subject to upcoming Ministry of Finance’s instructions, an antihybrid mismatch documentation regime should be available to protect from penalties applicable in the case of ATAD 2 hybrid assessments (Qualified Documentation). The Qualified Documentation must be prepared before the deadline for the submission of the relevant financial year’s ‘s tax return and before the start of any audit activity.

Debt-to-equity rules. For information regarding restrictions on the deductibility of interest, see Section C. Mergers and acquisitions. Mergers of two or more companies, demergers and asset contributions in exchange for shares are, in principle, tax-neutral transactions. However, companies undertaking mergers, demergers and asset contributions in exchange for shares may step up the tax basis of the assets for IRES and IRAP purposes by paying a step-up tax at rates ranging from 12% to 16%. Different types of step-up elections are available.

920 I ta ly Foreign PEs of Italian entities and Italian PEs of foreign entities

Foreign PEs of Italian entities. An election is available to exempt income generated through foreign PEs. For branches located in a low-tax country, CFC rules apply. The election is irrevocable and involves automatically all of a company’s PEs (that is, “all in or all out”).

Italian PEs of foreign entities. Income is attributed to Italian PEs in line with the “Authorized OECD Approach.” The PE income is determined according to the ordinary rules for resident companies and on the basis of a specific statutory account prepared according to the Italian accounting principles applying to resident enterprises with similar features.

Dealings between Italian PEs and foreign headquarters are explicitly subject to Italian transfer-pricing rules. In this respect, a PE is treated as separate and independent from its headquarters, and profits attributed to the PE are those that the branch would have earned at arm’s length as if it were a “distinct and separate” entity performing the same or similar functions under the same or similar conditions, determined by applying the arm’s-length principle. A branch “free capital” (fondo di dotazione) is also attributed to the PE on the basis of OECD principles.

The 2018 Budget Law expanded the definition of PE to align it with the revised definition in the 2017 version of the OECD model. However, as a departure from the current OECD version, the Italian domestic rule includes the following definition of a digital PE: “A continuous and significant economic presence of a foreign company in Italy, regardless of whether it has a substantial Italian physical presence, will trigger the existence of a fixed base that could give rise to an Italian PE.” The 2023 Budget Law introduced a PE exemption, under certain circumstances, for activities carried out in Italy by foreign investment management companies.

Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS. On 7 June 2017, Italy and 67 other jurisdictions

signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the MLI).

At the time of signature, Italy submitted a list of 84 tax treaties entered into by Italy and other jurisdictions that it would like to designate as covered tax agreements (tax treaties to be amended through the MLI).

Together with the list of covered tax agreements, Italy also submitted a provisional list of reservations and notifications (MLI positions) with respect to the various provisions of the MLI. The definitive MLI positions will be provided on the deposit of Italy’s instrument of ratification, acceptance or approval of the MLI. BEPS Pillar Two Global Anti-Base Erosion Rules provisions. The International Tax Decree (Legislative Decree No. 209/2023) transposed the BEPS Pillar Two Global Anti-Base Erosion (GLoBE) rules, implemented by the EU Minimum Tax Directive (Council Directive [EU] 2022/2523 of 14 December 2022).

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Among other items, the Italian Pillar Two regulations introduce the global minimum top-up taxation rules by providing for the main interlocking measures (that is, the Income Inclusion Rule [IIR], which is translated in Italian as imposta minima integrative and the Undertaxed Payments Rule [UTPR], which is translated in Italian as imposta minima suppletive, as well as a Qualifying Domestic Top-Up Tax [QDMTT] under the safe-harbor OECD standard, which is translated in Italian as imposta minima nazionale).

The BEPS Pillar Two provisions are effective with reference to financial years starting on or after 31 December 2023, except for the UTPR provisions that are due to apply to financial years starting on or after 31 December 2024.

F. Treaty withholding tax rates Dividends (1) %

Albania Algeria Argentina Armenia Australia Austria Azerbaijan Bangladesh Barbados Belarus Belgium Bosnia and Herzegovina (v) Brazil Bulgaria Canada Chile China Mainland Colombia Congo (Republic of) Côte d’Ivoire Croatia Cyprus Czech Republic Denmark Ecuador Egypt Estonia Ethiopia Finland France Georgia Germany Ghana Greece Hong Kong (ddd) Hungary

Interest %

Royalties %

10 15 15 5/10 (a) 15 15 10 10/15 (a) 15 5/15 (a) 15

0/5 (d)(e)(z) 0/15 (d)(e)(z) 0/20 (d)(e)(z) 0/10 (b)(d) 0/10 (d) 0/10 (d)(e)(z) 0/10 (yy) 0/10/15 (d)(e)(y) 0/5 (d)(e)(z) 0/8 (d)(e)(z) 0/15 (w)

5 5/15 (o) 10/18 (h) 7 10 0/10 (i) 5/10 (xx) 10 5 6 5

10 15 10 5/15 (a) 10 10 5/15 (a)

10 0/15 (d) 0 0/10 (d)(e)(z) 4/5/10/15 0/10 (d)(tt) 5/10 (ggg)

10 15/25 (k) 5 0/5/10 (h) 2/5/10 10 10

8/15 (fff) 0 10 15/18 (t) 0/15 (d) 10 15 0/10 (b)(d) 5 15 (vv) 10 0 15 0 0/5 (h) 0/15 (a) 0/10 (ee)(mm) 0/5 (nn) 15 0/10 (d)(e)(z) 5 26 (cc) 0/25 (d)(e)(z) 15 5/15 (a) 0/10 (d)(uu) 5/10 (kk) 10 0/10 (oo) 20 10/15 (a) 0/15 (d)(e)(z) 0/5 (o) 5/15 (a)(gg) 0/10 (d)(e)(z)(ee) 0/5 (o) 5/10 (a) 0 0 10/15 (a) 0/10/15 (d)(e)(z)(ee)(ff) 0/5 (l) 5/15 (a) 10 10 15 0/10 (d)(e)(z) 0/5 (m) 10 (ccc) 0/12.5 (d)(ccc) 15 (ccc) 10 0 0

922 I ta ly Dividends (1) %

Iceland 5/15 (a) India 15/25 (a) Indonesia 10/15 (a) Ireland 15 Israel 10/15 (a) Japan 10/15 (a) Jordan 10 Kazakhstan 5/15 (a) Korea (South) 10/15 (a) Kuwait 5/20 (a) Kyrgyzstan (u) 15 Latvia 5/15 (a) Lebanon 5/15 (aaa) Lithuania 5/15 (a) Luxembourg 15 Malaysia 10 (ww) Malta 15 Mauritius 5/15 (a) Mexico 15 Moldova 5/15 Mongolia 5/15 (a) Montenegro (v) 10 Morocco 10/15 (a) Mozambique 15 Netherlands 5/10/15 (c) New Zealand 15 North Macedonia 5/15 (a) Norway 15 Oman 5/10 (pp) Pakistan 15/25 (a) Philippines 15 Poland 10 Portugal 15 Qatar 5/15 (a) Romania 10 Russian Federation 5/10 (g) San Marino 5/15 Saudi Arabia 5/10 (a) Senegal 15 Serbia (v) 10 Singapore 10 Slovak Republic 15 Slovenia 5/15 (a) South Africa 5/15 (a) Spain 15 Sri Lanka 15 Sweden 10/15 (a) Switzerland (eee) 15 Syria 5/10 (a) Taiwan 10 Tajikistan (u) 15 Tanzania 10 Thailand 15/20 (a)

Interest %

Royalties %

0 0/15 (d)(e) 0/10 (d)(e)(z) 10 10 10 0/10 (d)(e) 0/10 (d)(e)(z) 0/10 (d)(e)(uu) 0 0 0/10 (d) 0 0/10 (d)(e)(z) 0/10 (d)(e)(z) 0/15 (d) 0/10 (d)(e)(z) 0/20 (dd) 0/15 (d)(e)(z) 5 10 10 0/10 (d)(e)(z) 0/10 (ll) 0/10 (d)(e)(z) 0/10 (d)(e)(z) 0/10 (d)(e)(z) 0/15 (d)(e)(z) 0/5 (oo) 0/30 (d)(e)(z) 0/10/15 (d)(e)(z) 0/10 (d)(e)(z) 0/15 (d)(e)(z) 0/5 (d)(e)(z) 0/10 (d)(e)(z)

5 20 10/15 (x) 0 0/10 (o) 10 10 0/10 (hh) 10 10 0 5/10 (kk) 0 5/10 (kk) 10 15 0/10 (m) 15 0/15 (l) 5 5 10 5/10 (o) 10 5 10 0 5 10 30 15/25 (zz) 10 12 5 10

10 0/13 0/5 (d)(e)(z) 0/15 (ll) 10 0/12.5 (d)(z) 0 0/10 (d)(e)(z) 0/10 (d)(e)(z) 0/12 (d)(e)(z) 0/10 (d)(e)(z) 0/15 (d)(e)(z) 12.5 (rr) 0/10 (qq) 10 0 15 0/10 (d)(e)(j)

0 10 10 15 10 15/20 (n) 0/5 (bbb) 5 6 4/8 (o) 10/15 (q) 5 5 18 10 0 15 5/15 (h)

I ta ly 923 Dividends (1) %

Trinidad and Tobago 10/20 (a) Tunisia 15 Türkiye 15 Turkmenistan (u) 15 Uganda 15 Ukraine 5/15 (a) USSR (u) 15 United Arab Emirates 5/15 (a) United Kingdom 5/15 (a)(gg) United States 5/15 Uruguay 5/15 (a) Uzbekistan 10 Venezuela 10 Vietnam 5/10/15 (f) Yugoslavia (v) 10 Zambia 5/15 (a) Non-treaty jurisdictions 26 (ss)

Interest %

Royalties %

0/10 (z) 0/12 (d)(e) 15 0 0/15 (b)(z) 0/10 (ll) 0/26 (ii)

0/5 (bb) 5/12/16 (r) 10 0 10 7 –

0

10

0/10 (e)(ee) 0/10 (aa) 10 0/5 (ll) 0/10 (b)(z) 0/10 (d)(e)(z) 10 0/10 (d)

8 0/5/8 (s) 10 5 7/10 (p) 7.5/10 (jj) 10 10

26 (ss)

22.5/30 (ss)

(1) Dividends paid by Italian companies to EU parent companies are exempt from withholding tax if the recipient company holds a participation of at least 10% in the distributing company for an uninterrupted period of at least one year.

Otherwise, a 1.2% dividend withholding tax rate applies under domestic law to dividends paid to EU and EEA subject-to-tax companies. (a) The lower rate applies to corporate shareholders satisfying the following qualifying tests: • Armenia: at least 10% of the capital (equal to at least USD100,000 or the equivalent value in other currency) for 12 months • Bangladesh, Canada, Estonia, India, Kazakhstan and Lithuania: at least 10% of the capital • Colombia: at least 20% of the capital or if the beneficial owner is a recognized pension fund • Denmark, Qatar and Saudi Arabia: at least 25% of the capital for 12 months before the date the dividend is distributed • Finland: more than 50% of the capital • France: more than 10% of the capital for 12 months • Belarus, Georgia, Germany, Indonesia, Israel, Jamaica, Korea (South), Mauritius, Moldova, Morocco, North Macedonia, Pakistan, Slovenia, Syria, Trinidad and Tobago, United Arab Emirates and Zambia: at least 25% of the capital • Ghana and Uruguay: at least 10% of the capital • Iceland and Mongolia: beneficial owner is a company (other than a partnership) owning at least 10% of the capital for at least 12 months • Japan: at least 25% of the shares with voting rights for six months • Kuwait: at least 25% of the capital • Latvia: beneficial owner is a company (other than a partnership) owning at least 10% of the capital • South Africa: at least 25% of the capital for 12 months ending on the date the dividend is declared • Sweden: at least 51% of the capital • Thailand: at least 25% of the shares with voting rights • Ukraine: at least 20% of the capital • United Kingdom: at least 10% of the shares with voting rights for 12 months (b) The 0% rate applies to interest paid to or by a government. (c) The 5% rate applies to corporations that beneficially own more than 50% of the voting rights of the shares for the 12-month period ending on the date of declaration of the dividend. The 10% rate applies to the gross amount of the dividends if the beneficial owner is a company that is not entitled to the application of the 5% rate and that has held at least 10% of the voting shares of the company paying the dividends for the 12-month period preceding the date of declaration of the dividends. The 15% rate applies in all other cases.

924 I ta ly (d) Interest paid to a “government” or central bank is exempt. The term “government” refers to the central government and any other local authority entirely owned by the state that receives interest on behalf of the central authority. (e) Interest paid by a contracting state is exempt. Under the Philippines treaty, the loan must involve the issuance of bonds or financial instruments similar to bonds. (f) The 5% rate applies to dividends paid to corporations that beneficially own at least 70% of the capital of the payer. The 10% rate applies to dividends paid to corporations that beneficially own at least 25% but less than 70% of the capital of the payer. The 15% rate applies to other dividends. (g) The 5% rate applies if the recipient of the dividend is a corporation that beneficially owns more than 10% of the capital of the payer and if the value of the participation of the recipient is at least USD100,000 or an equivalent amount in another currency. The 10% rate applies to other dividends. (h) The lower rate is for the use of or right to use literary, artistic and scientific copyrights. Under the Canada treaty, the lower rate applies only to literary and artistic copyrights. (i) The higher rate applies if the recipient has an investment exceeding 50% of the capital of the payer. (j) The 10% rate applies only if the payer is engaged in an industrial activity and the interest is paid to a financial institution (including an insurance company). The exemption also applies to bonds issued by a contracting state. (k) The 25% rate applies to trademark royalties only. (l) The lower rate applies to royalties for literature, plays, and musical or artistic works. Under the Germany treaty, royalties for films and recordings for television qualify for the lower rate. Under the Canada treaty, such royalties do not qualify for the lower rate. Under the Mexico treaty, royalties for films and recordings for television and radio do not qualify for the lower rate. (m) The lower rate applies to royalties paid for literary, artistic or scientific works and for films and recordings for radio or television. (n) The lower rate applies to patents, trademarks, trade names or other intellectual property. (o) The lower rate applies to royalties from the use of copyrights on literary, artistic or scientific works (excluding cinema and television films). (p) The lower rate applies to royalties paid for the use of, or the right to use, copyrights for literary, artistic or scientific works, including cinematographic films and recordings for radio and television broadcasts. (q) The lower rate applies to royalties paid for literary and artistic works, including films and recordings for radio and television. (r) In the case of royalties for the use of trademarks, films and industrial, commercial or scientific equipment, the withholding tax rate is 16%; for the use of copyrights for artistic, literary and scientific works, the rate is 5%. In all other cases, the rate is 12%. (s) The 0% rate applies to royalties for copyrights of literary, artistic or scientific works (excluding royalties for computer software, motion pictures, films, tapes or other means of reproduction used for radio or television broadcasting). The 5% rate applies to royalties for the use of, or the right to use, computer software or industrial, commercial, or scientific equipment. In all other cases, the 8% rate is imposed on the gross amount of the royalties. (t) The 18% rate applies if the dividends are paid by a company that is resident in Côte d’Ivoire and that is exempt from tax on its income or not subject to that tax at the normal rate. The 15% rate applies in all other cases. (u) The treaty with the former USSR remains applicable with respect to Kyrgyzstan, Tajikistan and Turkmenistan. (v) The treaty with the former Yugoslavia applies to Bosnia and Herzegovina, Montenegro and Serbia. (w) An exemption applies to the following: • Interest on loans that are not in the form of bearer securities if the interest is paid to the following: the other contracting state; its political or administrative subdivisions; or its local authorities • Interest paid to credit institutions of the other contracting state if the interest is paid on loans that are not in the form of bearer securities and if the loans are permitted under an agreement between the governments of the contracting states (x) The 10% rate applies to royalties and commissions paid for the use of or right to use the following: industrial, commercial or scientific equipment; or information concerning industrial, business or scientific know-how. The 15% rate applies to other royalties. (y) The 10% rate applies to interest paid by banks and other financial entities (that is, insurance companies). The 15% rate applies to other interest.

I ta ly 925 (z)

Interest paid on loans made in accordance with an agreement between the governments of the contracting states is exempt. Under the Mexico treaty, the loan must have a term of at least three years. (aa) Interest withholding tax is not imposed if any of the following circumstances exist: • The interest is beneficially owned by a resident of the other contracting state that is a qualified governmental entity and that holds, directly or indirectly, less than 25% of the capital of the person paying the interest.

• The interest is paid with respect to debt obligations guaranteed or insured by a qualified governmental entity of that contracting state or the other contracting state and is beneficially owned by a resident of the other contracting state.

• The interest is paid or accrued with respect to a sale on credit of goods, merchandise, or services provided by one enterprise to another enterprise.

• The interest is paid or accrued in connection with the sale on credit of industrial, commercial, or scientific equipment. (bb) The lower rate applies to royalties for literature, musical and artistic works. (cc) The 26% rate is the rate under Italian domestic law for dividends paid to nonresidents. (dd) These are the rates under Italian domestic law. Under the treaty, the rate is 0% if the interest is paid to a Mauritian public body or bank resident in Mauritius. (ee) Exemption is provided for interest paid in connection with the following: • Credit sales of industrial, commercial or scientific equipment • Credit sales of goods delivered from one enterprise to another enterprise (ff) A 15% rate, which is contained in the dividend article, applies to payments on profit-sharing loans and to silent partners. The 10% rate applies in other circumstances. (gg) A refund may be available for the underlying tax credit with respect to business profits attached to the dividends. (hh) If a resident of a contracting state receives payments for the use of, or the right to use, industrial, commercial or scientific equipment from sources in the other contracting state, the resident may elect to be taxed in the contracting state in which the royalties arise as if the property or right for which the royalties are paid is effectively connected with a PE or fixed base in that contracting state. If such election is made, no withholding tax is imposed on the payments. (ii) The treaty exempts the following types of interest: • Interest on bank credits and loans • Interest on current accounts and deposits with banks or other credit institutions The 26% rate is the withholding tax rate under Italian domestic law. (jj) The lower rate applies to fees paid for technical assistance services. The higher rate applies to royalties paid for the use of the intangibles. (kk) The 5% rate applies to royalties paid for the use of industrial, commercial or scientific equipment. (ll) The treaty provides the following exemptions: • Interest paid by the government or its local authorities • Interest paid to the government of the other contracting state or its local authorities or other entities and organizations (including credit institutions) wholly owned by the other contracting state or its local authorities • Interest paid to other entities and organizations (including credit institutions) if the interest is paid on loans permitted under an agreement between the governments of the contracting states (mm) The treaty provides the following exemptions: • Interest paid by the state of source, its political or administrative subdivisions or its local authorities • Interest paid on loans granted, guaranteed or secured by the government of the other contracting state, by its central bank or by other entities and organizations (including credit institutions) wholly owned by the other contracting state or under its control (nn) The lower rate applies to royalties paid for the use of, or the right to use, copyrights for literary, artistic or scientific works, excluding cinematographic films and other audio and visual recordings. (oo) The treaty provides the following exemptions: • Interest paid by the government or a local authority thereof • Interest paid to the government, a local authority thereof or an agency or instrumentality (including a financial institution) wholly owned by the other contracting state or a local authority thereof

926 I ta ly

(pp) (qq)

(rr)

(ss) (tt)

(uu)

(vv)

(ww)

(xx) (yy)

(zz)

(aaa) (bbb)

(ccc)

• Interest paid to any other agency or instrumentality (including a financial institution) with respect to loans made under agreement entered into between the governments of the contracting states The 5% rate applies to companies (other than partnerships) that hold directly at least 15% of the capital of the payer of the dividends. The 10% rate applies to other dividends.

The treaty provides the following exemptions: • Interest paid to a contracting state, a local authority thereof, or a corporation having a public status, including the central bank of that state • Interest paid by a contracting state or local authority thereof, or any corporation having a public status • Interest paid to a resident of a contracting state with respect to debt obligations guaranteed or insured by that contracting state or by another person acting on behalf of the contracting state • Interest paid with respect to sales on credit of industrial, commercial or scientific equipment or of goods or services between enterprises • Interest paid on bank loans Effective from 1 July 2005 a 0% rate may apply under the agreement between Switzerland and the EU. The rates shown in the table are the withholding tax rates under the Italy-Switzerland double tax treaty. Subject to fulfillment of the respective requirements, the taxpayers may apply either the Switzerland-EU agreement or the Italy-Switzerland double tax treaty.

See Section A. The exemption applies to interest paid to a resident of the other contracting state with respect to debt claims indirectly financed by the government of that other contracting state, a local authority, the central bank thereof or a financial institution wholly owned by the government of the other contracting state.

The lower rate applies to interest related to loans that are guaranteed by the government or a local authority. Under the Korea treaty, the guarantee must be evidenced by an agreement contained in an exchange of letters between the competent authorities of the contracting states.

The 15% rate applies to dividends paid by a company established in Italy to a Cyprus resident beneficiary. Dividends paid by a company established in Cyprus to an Italian resident beneficiary are exempt from withholding tax in Cyprus.

The 10% rate applies to dividends paid by an Italian company to a Malaysian resident. Dividends paid by a Malaysian company to an effective beneficiary resident in Italy are exempt from tax in Malaysia if the beneficiary is subject to tax on the dividends in Italy.

The 5% rate applies to royalties for the use of, or the right to use, computer software or industrial, commercial, or scientific equipment. In all other cases, the rate for royalties is 10%.

The treaty provides an exemption from withholding tax for the following types of interest payments: • Interest paid by the state of source, its political or administrative subdivisions or its local authorities • Interest paid on loans granted, guaranteed or secured by the government of the other contracting state, by its central bank or by other entities and organizations (including credit institutions) wholly owned by the other contracting state or under its control • Interest paid or accrued in connection with the sale on credit of industrial, commercial, or scientific equipment The 15% rate applies if the royalties are paid by an enterprise registered with the Philippine Board of Investments and engaged in preferred areas of activities and to royalties with respect to cinematographic films or tapes for television or broadcasting. The 25% rate applies in all other cases.

The 5% rate applies if the recipient company has owned at least 10% of the capital in the Italian company for at least 12 months.

The 5% rate applies to royalties paid for the following: • The use of, or the right to use, patents, trademarks, designs or models, plans, and secret formulas or processes • The use of, or the right to use, industrial, commercial or scientific equipment that does not constitute immovable property, as defined in Article 6 of the treaty • Information concerning experience of an industrial, commercial or scientific nature The treaty contains a specific anti-abuse provision. If the main purpose or one of the main purposes of the transaction is to benefit from the lower treaty rates, the lower rates may be denied.

I ta ly 927 (ddd) On 10 August 2015, the income tax treaty between Italy and Hong Kong entered into force. The treaty is in effect with respect to Italian tax for years of assessment beginning on or after 1 January 2016. Under the treaty, Hong Kong has been removed from the Italian prohibited lists (for both cost deductions and for CFC purposes). (eee) On 23 February 2015, Italy and Switzerland signed a protocol to their double tax treaty as well as a road map for the continued dialogue in tax and financial matters. (fff) The 8% rate applies if the beneficial owner (different from a partnership or similar body) holds a minimum shareholding of 10% in the entity paying the dividends. (ggg) The 5% rate applies if the beneficial owner is a statutory body or an export financing agency or a recognized pension fund. The 10% rate applies in all the other cases.