The draft budget law 2021 includes a proposal that may prove favorable for foreign funds investing in shares of Italian resident companies. The proposal is aimed at repealing the discriminatory tax treatment of dividends distributed to foreign investment funds and also of capital gains realized by these funds.
Under Italy’s current tax measures, if Italian investment funds (or their management companies) are subject to prudential supervision, they are not subject to tax—whereas foreign investment funds are subject to withholding tax at a rate of 26%.
The draft provision in the budget law 2021 would revise this treatment, so that dividends distributed by Italian companies to eligible foreign funds and capital gains realized from the disposal of Italian qualifying equities (as defined) would not be subject to tax in Italy. This favorable tax treatment would only apply with regard to foreign collective investment undertakings established in an EU or EEA Member State that allows for an adequate exchange of information for tax purposes, to the extent that: (1) they comply with Directive 2009/65/EC (the UCITS Directive); or (2) if they do not comply with the UCITS Directive, they are managed by an alternative investment fund manager (AIFM) subject to regulatory supervision in the country where it is established in accordance with Directive 2011/61/EU (the AIFM Directive).
If the proposal is enacted, the new measure would be effective for dividends distributed and capital gains realized from 1 January 2021.
A report accompanying the proposal explains that the purpose of the new measure is to address differences between the tax treatment of domestic collective investment undertakings and that for foreign entities. Foreign collective investment undertakings, therefore, may want to consider filing protective refund claims for the years up to 2020 or to submit “refresher letters” for which the statutory limitations period (10 years from the filing date of the claim) will expire by 31 December 2020.
Read a November 2020 report [PDF 147 KB] prepared by the KPMG member firm in Italy
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