On 28 December 2018, the Italian government published
Legislative Decree No. 142, transposing the European Union's
Anti-Tax Avoidance Directive (2016/1164) into Italian
legislation. The new set of provisions will be effective from
the fiscal year following December 31 2018. The decree will aim
to tackle tax avoidance practices related to interest
deduction, exit tax, rules on foreign controlled companies, a
definition of financial intermediaries, and hybrid mismatches,
all of which are explored below.
Firstly, a new definition of interest is provided. More
specifically, interest payments and interest income now
- Interest as defined under the accounting
principles and confirmed as such under current tax
- Interest deriving from a transaction,
financial relationship, or relationship with a significant
The limitations under Article 96 of the Italian Tax Code
(TUIR) are also extended to:
- Interest payments included in the cost of
assets under Article 110 (1b) of the TUIR; and
- Interest payments for mortgage-backed
loans on proper-ties rented out.
Moreover, interest payments that exceed interest income and
30% of earnings before interest and taxes (EBIT), regardless of
whether they belong to the current year or are carried forward,
may be deducted in subsequent tax periods, up to an amount
equal to the difference between:
- Interest income of the tax period and 30%
of EBIT; and
- Interest payments of the tax period.
The new decree sets out in detail the individual scope of
the so-called exit tax. The exit tax applies whenever taxpayers
in Italy (be they a resident for tax purposes or a permanent
establishment) transfer abroad either their (i) fiscal
residence, or (ii) a permanent establishment, or (iii) assets.
In such cases, the capital gain generated from the difference
between the market value and fiscally recognised cost of the
asset/liability transferred abroad is subject to taxation.
Losses incurred in previous years may be deducted from the
capital gain. It will be determined in compliance with the
criteria set forth under the new Article 166-bis.
Under certain circumstances, the taxes calculated on the
capital gain (net of losses) can be paid in five annual
Controlled foreign companies (CFC)
In order for the CFC provisions to be applicable,
non-resident companies are deemed controlled if the Italian
- Holds direct or indirect control under
Article 2359 of the Italian Civil Code; or
- Owns directly or indirectly more than 50%
of the profits distributed.
Furthermore, foreign-based, permanent establishments of
non-resident controlled taxpayers and resident taxpayers that
opted for the branch exemption scheme are deemed controlled
The new provisions no longer distinguish between black list
and white list countries. The CFC provisions apply if the
non-resident controlled taxpayers jointly meet the following
- They are subject to actual taxation that
is less than half of the taxes applicable in Italy
(simplification criteria for comparison are still to be
defined by decree); and
- More than one-third of their income
qualifies as interest or other income (e.g. interest or
Newly introduced Article 162-bis of the TUIR provides a
- Financial intermediaries;
- Financial holding companies; and
- Non-financial holding companies and
The provisions apply starting from fiscal year 2018. The
changes will have an impact also on the Italian regional
production tax (IRAP).
The ATAD Decree introduces a package of measures on hybrid
mismatches with the aim of tackling double deduction or
"deduction without income inclusion" (deduction of a negative
income component in one country without any taxation in the
other country) due to a different characterisation of financial
instruments, payments, entities, and permanent establishments
in various countries.
Such mismatches are those registered at international level.
Any domestic mismatches will continue to be tackled through
general anti-abuse rules.
Gian Luca Nieddu (email@example.com) and Barbara
Hager & Partners
Tel: +39 02 7780711