On February 19, 2014, an immediate suspension of Italy’s 20-percent withholding tax went into effect. The withholding had been required any time funds were received from abroad by financial institutions in Italy on behalf tax resident individuals. Any amounts that had been withheld will be repaid by the banks.
A 19 February 2014 communication from the Italian Finance Ministry publicly announced an immediate suspension of the 20-percent withholding tax to be applied by Italian Intermediaries on funds received in Italy by tax resident individuals from foreign bank accounts1. A subsequently issued provision by the Tax Agency provides that the 20-percent withholding has not actually been abolished, but the implementation date for the new withholding arrangement has been pushed back to 1 July 2014.
This recently-introduced new compliance obligations and administrative procedures imposed on financial institutions and other intermediaries – and the individuals concerned – in respect of the 20-percent withholding where certain transactions from abroad were concerned have been lifted.
In its short existence, the rules on the 20-percent withholding had caused a great deal of confusion for individuals transferring money from abroad and to Italian banks (who were obliged to operate the withholding). The suspension of the 20-percent withholding is, therefore, welcome.
The communication further states that any amounts withheld under the new law will be repaid by the banks to the individuals concerned. The Finance Ministry communication states that recent developments in the area of exchange of information and multilateral reporting have rendered the 20-percent withholding unnecessary.
Under the recently-introduced rules, financial institutions (or other intermediaries) were required to withhold tax any time they were involved in a transaction from abroad. The tax withheld was treated as a payment toward the individual’s final tax liability. These financial institutions and intermediaries and the individuals concerned, in some cases, had new obligations and administrative procedures to comply with as a result of the new rules.
There is a possibility that the announced suspension will be followed by an abrogation of the relevant legislation. This remains to be seen.
1 See: Communication 46, Ministry of Economics and Finance, Rome 19.20, 18 February 2014. See the “Comunicato Stampa No. 46 del 19 febbraio 2014” (in Italian).
Protocol- Agenzia Dell’Entrate 2014/26443 Rome 19th February 2014.
For prior coverage of the 20-percent withholding tax rules and associated obligations, see Flash International Executive Alert 2014-008, 29 January 2014.
The information contained in this newsletter was submitted by the KPMG International member firm in Italy.
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