All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Italy: Italy implements the EU’s Anti-Tax Avoidance Directive

Sponsored by


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.

Interest deduction

Firstly, a new definition of interest is provided. More specifically, interest payments and interest income now include:

  • Interest as defined under the accounting principles and confirmed as such under current tax provisions; and

  • Interest deriving from a transaction, financial relationship, or relationship with a significant financing component.

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.

Exit tax

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 instalments.

Controlled foreign companies (CFC)

In order for the CFC provisions to be applicable, non-resident companies are deemed controlled if the Italian taxpayer:

  • 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 taxpayers.

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 pre-requisites:

  • 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 royalties).

Financial intermediaries

Newly introduced Article 162-bis of the TUIR provides a definition of:

  • Financial intermediaries;

  • Financial holding companies; and

  • Non-financial holding companies and similar companies.

The provisions apply starting from fiscal year 2018. The changes will have an impact also on the Italian regional production tax (IRAP).

Hybrid mismatches

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.

more across site & bottom lb ros

More from across our site

The Biden administration is about to give $80 billion to the Internal Revenue Service to enhance the tax authority’s enforcement processes and IT systems.
Audi, Porsche, and Kia say their US clients will face higher prices under the Inflation Reduction Act after the legislation axes an important tax credit for electric vehicle production.
This week Brazil’s former President Luiz Inacio Lula da Silva came out in support of uniting Brazil’s consumption taxes into one VAT regime, while the US Senate approved a corporate minimum tax rate.
The Dutch TP decree marks a turn in the Netherlands as the country aligns its tax policies with OECD standards over claims it is a tax haven.
Gorka Echevarria talks to reporter Siqalane Taho about how inflation, e-invoicing and technology are affecting the laser printing firm in a post-COVID world.
Tax directors have called on companies to better secure their data as they generate ever-increasing amounts of information due to greater government scrutiny.
Incoming amendments to the treaty could increase costs on non-resident Indian service providers.
Experts say the proposed minimum tax does not align with the OECD’s pillar two regime and risks other countries pulling out.
The Malawian government has targeted US gemstone miner Columbia Gem House, while Amgen has successfully consolidated two separate tax disputes with the Internal Revenue Service.
ITR's latest quarterly PDF is now live, leading on the rise of tax technology.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree