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Fund Taxation Alert 2021-05

Italy – Clarification regarding relief at source opportunities for investment funds

Italy – Clarification regarding relief at source opportunities for investment funds

Olivier Schneider

Partner, Financial Services Tax

KPMG in Luxembourg

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As of January 1, 2021, EU/EEA UCITS fund or non-UCITS fund can benefit from a 0% withholding tax (WHT) rate on outbound dividends and capital gains, a reduction from the standard WHT rate of 26%.

In our Fund Taxation Alert 2021-01 issued on January 13, 2021 we explained that the Italian Tax Authorities have currently not issued guidelines specifying the modalities of application of the WHT exemption” for EU/EEA UCITS fund or non-UCITS fund.

To address this lacuna, the Assogestioni, the Italian custodian association, has now issued Circular Letter 26/21/C dated March 12, 2021 to clarify the procedures to follow.

In addition to the WHT exemption on interest payments for non-Italian residents in the so-called Italian White List, a WHT exemption is now possible on dividends distributed as from January 1, 2021. The circular letter has explained that this exemption may be availed of on the basis of a self-declaration.

KPMG comments

With respect to this circular issued by the Assogestioni, it appears that the Italian Tax Authorities have not yet approved any official tax form to avail of this WHT exemption.

This means that each Italian custodian/withholding agent must define its own exemption procedure, which can lead to added complexities.

The way forward:

KPMG recommends that you quickly implement this new exemption on dividends by ensuring that the fund is correctly documented.

KPMG can assist by:

  • liaising with your custodian to implement the specific exemption procedure;
  • assisting in the completion of the appropriate documentation; and
  • filing EU law WHT reclaims for the dividends paid before the implementation of the exemption procedure, considering that through this change of 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.

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.