On 30 December 2020, the Italian budget law for 2021 was approved and published in the Official Gazette No. 322 (Law n°178) and its new regulations entered into force as from 1 January 2021.
According to these new provisions, all EU/EEA funds and funds managed by an Alternative Investment Fund Manager (AIFM) may apply for a withholding tax (WHT) exemption on Italian dividends and capital gains if the following conditions are met:
In a nutshell, your EU/EEA UCITS fund or non-UCITS fund - as mentioned above - could benefit from 0% WHT rate instead of 26% WHT rate on outbound dividend payments / capital gains with effect from 1 January, 2021.
With respect to the new law, the Italian tax authorities have directly or indirectly admitted that there was a discrimination between resident and non-resident funds regarding WHT on dividend payments in the past.
As a result, this change of law also has an impact on past WHT suffered by foreign investment funds in Italy. If not already done, we strongly recommend to file WHT reclaims. In addition, in case WHT reclaims have already been filed, it is important to initiate court proceedings as the WHT reclaims are subject to a tacit rejection if no answer of the tax authorities is issued within 90 days after the filing of said reclaim. In case of success, an annual interest of 2% should normally also be granted by the Italian tax authorities.
The Italian tax authorities have currently not issued guidelines specifying the modalities of application of the WHT exemption. We nevertheless recommend liaising already with your custodian in order to ensure that, once it has been clarified which documents are required, your investment funds will be documented on time to benefit from the WHT exemption. It is also important to bear in mind that Italian companies usually distribute first dividends around late January and in April/May each year.
The way forward:
KPMG can analyze the situation for your investment funds and support you in any necessary efforts, including:
A dedicated team of tax advisers and project management experts could support you to process appeal cases in Italy.
Please do not hesitate to contact us for further assistance.
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