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Fund Taxation Alert 2021-01

Fund Taxation Alert 2021-01

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New WHT exemptions on dividends and capital gains introduced in Italy

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:

  • The fund is set up under the UCITS Directive 2009/65/EC of 13 July 2009 of the European Parliament and of the Council; or
  • The Non-UCITS fund is managed by an AIFM or management company subject to regulatory supervision in its country and established in accordance with the EU Directive 2011/61 of 8 June 2011 and the EEA Agreement on adequate exchange of information (AIMF directive) applies.

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.

KPMG comments

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:

  • Filing WHT reclaims
  • Filing appeals and initiate court proceedings
  • Help you to correctly document your funds to avail WHT exemption

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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