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Italy: Italian government issues decree implementing exit tax

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Giuliano Foglia


Marco Emma

The new tax deferral regime applicable to the migration of Italian companies to EU or certain EEA "white-listed" countries (qualifying countries) finds implementing rules. The Italian exit tax rule was amended in 2012 in response to the ECJ's November 29 2011 decision in National Grid Indus (C-371/10, recently confirmed by the April 25 2013 decision in the case C-64/11) in order to comply with the EU's freedom of establishment principle. In particular, for Italian companies moving their tax residence to a qualifying country (currently EU countries along with Iceland and Norway) a choice was then introduced, through a general and abstract provision, between: (i) the ordinary regime which entails the immediate taxation of the unrealised capital gains on migrated assets, which creates a disadvantage for companies in terms of cash flow but frees them from subsequent administrative burdens; and (ii) the deferred payment of taxes on such capital gains up to the moment of actual realisation (to be determined according to Italian tax rules), which necessarily involves an administrative burden for the company in connection with tracing the transferred assets.

On August 2 2013, the Italian government issued the decree (the Decree) introducing certain implementing provisions in respect of the scope of application of the deferral regime, the tax computation rules and certain recapture rules.

As for the scope of application, the deferral regime can be opted in relation to either all the assets transferred or to some of them (under a cherry-picking principle and subject to specific tax computation rules). However, the migrating entity would not be entitled to elect for the tax deferral regime in certain circumstances (in relation, inter alia, to values of trade goods and inventory or deferred tax reserves) characterised by complications in assessment of the actual realisation of the gains following the migration.

The new optional regime would apply on the basis of the fair market value of the assets/going concern at the date of the migration. To determine the taxable gain, goodwill and business functions/risks should also be taken into consideration, in compliance with transfer pricing rules.

Specific restrictions are implemented in relation to existing tax loss carry-forwards.

From a formal standpoint, certain periodical information filings must be complied with to allow the Italian tax authorities to trace the transferred assets and the events related thereto. Such formalities could suffice to enable the member state of origin to recover, at the time of realisation of the asset, the tax due on the unrealised capital gains.

The mentioned deferral regime shall apply also to Italian permanent establishments relocating to a qualifying country.

The Decree also allows taxpayers to alternatively elect for paying exit tax over a period of 10 years, in equal installments increased by legal interest. In such a case, taxpayers would be exempted from filing obligations.

In any case, both elections (that is, the tax deferral and the installment election) require the taxpayer to provide a bank guarantee.

Under an ad-hoc recapture rule, certain specific additional transactions may interrupt the deferral benefit and trigger the (ordinary) immediate payment of the outstanding exit tax (for example, further migration of the company to a country other than a qualifying country or mergers/demergers causing a subsequent transfer of the migrated assets to a company resident in a country other than a qualifying country).

On the contrary, to the extent that the migrated assets are not transferred further to a country other than a qualifying country, mergers and other reorganisations should not trigger the above mentioned recapture rule.

The Decree finally establishes that the Italian tax authorities will issue additional specific guidance on the formalities concerning the execution of the elections, the payment of the installments, the type of guarantees required and the periodical information filings.

Giuliano Foglia (foglia@virtax.it) and Marco Emma (emma@virtax.it)

Tremonti Vitali Romagnoli Piccardi e Associati

Tel: +39 06 3218022 (Rome); +39 02 58313707 (Milan)

Website: www.virtax.it

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