Mandatory disclosure rule in Italy under DAC6
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Mandatory disclosure rule in Italy under DAC6

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Guido Arie Petraroli and Francesco Cardone of LED Taxand analyse the DAC6 Directive in Italy focusing on the tax saving test, main benefit test and hallmark C1, in relation to inter-company debt financing.

The EU Directive 2018/822 of May 25 2018 (DAC6) introduced the mandatory reporting of potentially aggressive cross-border tax planning arrangements.

Italian implementation of DAC6

Italian Legislative Decree No. 100 of July 30 2020 implemented the DAC6 Directive (Italian DAC6 Law): its wording largely resembles the one of the DAC6. Subsequently, Ministerial Decree November 17 2020 further specified the hallmarks and the criteria to verify the fulfilment of the main benefit test (Italian DAC6 Ministerial Decree).

The Regulation of the Director of the Italian Revenue Agency No. 364425 of November 26 2020 provided technical rules related to the communication of reportable cross-border arrangements. On February 10 2021, Italian tax authorities issued guidelines clarifying the application of the new mandatory disclosure regime as well as the scope of the hallmarks, and giving examples (DAC6 Guidelines).

Italian implementation of the DAC6 Directive is in line with the scope and requirements of the DAC6: relating only to cross-border arrangements, covering the same taxes and including the same hallmarks as the DAC6 Directive. Nonetheless, certain peculiarities in the Italian DAC6 implementation must be considered in case of cross-border arrangements involving Italy.

Tax saving test

Hallmarks A, B, C and E trigger reporting obligations in Italy provided that a tax saving is expected from the cross-border arrangement (tax saving test). However, if the expected tax benefit is consistent with the principles and the policy objectives of the relevant tax provisions, the transaction would not be reportable (‘policy intent carve-out’).

Italian DAC6 Ministerial Decree provides that hallmarks A, B, C and E are relevant only to the extent they potentially entail a reduction of taxes due by a taxpayer in an EU member state or in a third country that entered into a specific exchange of information agreement with Italy.

In the lack of any specific agreement to date, the potential tax reduction must be verified with reference to Italy and other EU member states. Although the tax saving test is not explicitly mentioned in the DAC6 Directive, it appears consistent with its purpose of protecting the national tax bases of the EU member states (see preamble 2 of the DAC6 Directive).

Italian tax authorities clarified that a tax saving consists in a tax advantage which, having regard to all the relevant facts and circumstances, a person may reasonably expect to derive from an arrangement. In determining whether an arrangement could lead to a tax advantage, Italian DAC6 Ministerial Decree provides that it must be compared to the amount of tax due by a taxpayer, having regard to that arrangement, with the amount that the same taxpayer would owe under the same circumstances in the absence of the arrangement. This definition of tax advantage seems in line with paragraph 4.7 of the Commission Recommendation of December 6 2012 on aggressive tax planning (2012/772/EU).

The following examples of tax advantage are shown in the Italian DAC6 Guidelines:

  • Reduction of the tax base or reduction of tax;

  • Relief from double taxation or increase of such relief;

  • Tax refund or increase of such refund;

  • Medium- and long-term tax deferral; and

  • Elimination or reduction of withholding taxes.

In determining the tax consequences of cross-border arrangements, Italian DAC6 Guidelines specified that limitations under Italian tax law, such as CFC rules and anti-hybrid provisions, must not be considered.

Also, the reporting obligation arises also in case the taxpayer neutralises the tax effects of the arrangement in the relevant (subsequent) income tax return, generally filed in the following year, beyond the deadline for the DAC6 disclosure.

The Italian Joint Stock Companies Association mentioned that, in light of the purposes of DAC6, a cross-border arrangement should not be reportable in case Italy does already have appropriate tax measures (e.g. controlled foreign corporation (CFC) rules and anti-hybrid provisions) aimed at counteracting the effects of that arrangement.

If the tax saving test is met but the expected tax advantage is consistent with the policy intent of the relevant tax provisions, the transaction would not be reportable. Italian tax authorities clarified that the new mandatory disclosure rules apply to cross-border arrangements characterised by the presence of clues of a potential risk of tax avoidance. These schemes are indeed potentially able to have tax effects that are not consistent with the principles of the Italian tax system.

Based on the aim of the DAC6 Directive and the mentioned clarification of the Italian tax authorities, it is inferred that a cross-border arrangement is not subject to mandatory reporting where the tax advantage obtained can reasonably be regarded as consistent with the principles and the policy objectives of the relevant tax provisions. A similar ‘policy intent carve-out’ was mentioned in the UK’s tax authority (HMRC) guidelines (IEIM641020) before the UK narrowed the scope of reporting under DAC6.

Main benefit test

In line with the DAC6 Directive, pursuant to Italian DAC6 Ministerial Decree hallmarks under categories A and B as well as hallmarks C1(b)(i), C1(c) and C1(d) trigger reporting obligations only when they fulfil the main benefit test. However, under the Italian implementation of the main benefit test concept, only tax advantages related to Italian taxpayers and quantifiable non-tax advantages are considered.

Italian DAC6 Ministerial Decree provides that the main benefit test is fulfilled to the extent that the tax advantage is higher than 50% of the sum of the tax advantage and the non-tax advantages.

The tax advantage is calculated as the difference between the taxes due under the cross-border arrangement and the taxes due in the absence of such arrangement. With reference to the taxes due under the arrangement, also taxes paid abroad (i.e. in an EU member state or in a third country that entered into a specific exchange of information agreement with Italy) must be included. For example, where an arrangement involves a deductible payment in Italy and a corresponding taxable income in an EU country, foreign taxes have to be taken into account also.

In determining the tax advantage, only tax benefits related to Italian taxpayers (i.e. taxpayers that have their tax residence or a permanent establishment in Italy or derive Italian sourced income or carry out their activity in Italy) must be considered for the main benefit test purpose.

For example, a cross-border arrangement that has a substantially standardised documentation (hallmark A3), designed by an intermediary resident in Italy and made available to a taxpayer resident in an EU member state, not Italy, without any involvement of Italian taxpayers, the main benefit test is not fulfilled, since the tax advantage does not relate to any Italian taxpayer. Therefore, this arrangement will not be reportable in Italy.

Non-tax advantage is defined as any economic benefit deriving from the cross-border arrangement which is quantifiable and does not relate to taxes. Therefore, the only non-tax advantages that are relevant for the main benefit test purposes are those which can be quantified in terms of reduction of costs or increase of expected revenues.

To clarify further, the main benefit test is an (objective) mathematical calculation, and it does not require any analysis of the taxpayer’s subjective reasons or intentions. The following non-tax advantages may be relevant: the price of the transaction, the presence of ancillary costs (e.g. storage and warehouse costs, management fees, etc.), the ways of implementation of the transaction (e.g. time of delivery of goods or provision of services), the impossibility of purchasing goods or services from other providers, the organisational synergies, the presence of regulatory, organisational, commercial and production constraints that make the transaction with other providers excessively burdensome.

Hallmark C1 and inter-company debt financing

Italian tax authorities provided guidelines also with reference to the hallmarks under category C1 (i.e. deductible cross-border payments made between associated enterprises), which may be triggered in case of inter-company debt financing. Specifically, Italian DAC6 Guidelines clarify the definition of ‘payment’ and ‘recipient of the payment’.

The term ‘payment’ includes any negative item of income which is tax deductible. Payments between PE and headquarters as well as payments between PEs of the same company are also included.

With reference to the concept of ‘recipient of the payment’, Italian DAC6 Guidelines analyse the case of the payment made by a taxpayer to an associated enterprise through a conduit company, even if not an associated enterprise. Conduit company is an entity with no significant economic function in a transaction scheme, such as an entity constrained by a contractual obligation to pass the payment received on to the final beneficiary. In this scenario, the conduit company must be disregarded, and the analysis of the hallmarks must be carried out considering the payer and the final beneficiary of the payment.

Also, if cross-border payments are made to entities which are transparent for tax purposes in their country of establishment, Italian tax authorities clarified that the partner qualifies as recipient of the payment to the extent the state of the partner treats the entity as transparent. This is quite the opposite, if the state of the partner treats the entity as opaque, the recipient of the payment remains the entity. In this situation, if the country of establishment of the transparent entity does not tax the foreign partner on the income derived by the entity, the vehicle will be considered as not resident for tax purposes in any jurisdiction. Therefore, hallmark C1(a) is triggered and the main benefit test will not be required.

With reference to the latter scenario, Italian DAC6 Guidelines include the following example:

  • An Italian company pays interest to its foreign corporate shareholder BCo2;

  • BCo2 pays interest under a back-to-back loan to its shareholder BCo1 and fully offsets interest income and interest expenses; and

  • BCo1 qualifies as a reverse hybrid entity since it is treated as transparent in its country of establishment and as opaque in the state of the partner.

The effect of this arrangement is a tax deduction in Italy and a non-inclusion in any other country. In such a case, the Italian tax authorities concluded that hallmark C1(a) applies, which is not subject to the main benefit test. Conversely, if in the same scenario BCo2 had taxed a margin in line with the arm’s length principle, it should be reasonable to qualify the cross-border arrangement as not reportable in Italy under DAC6.


When considering cross-border arrangements involving Italy, multinational corporations should consider the peculiarities related to the Italian implementation of the DAC6 Directive such as:

  • Hallmarks A, B, C and E trigger reporting obligations in Italy provided that a tax saving is expected from the cross-border arrangement;

  • Under the Italian main benefit test only tax advantages related to Italian taxpayers and quantifiable non-tax advantages must be taken into account; and

  • In case of inter-company debt financing, hallmark C1 should be carefully analysed.


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Guido Arie Petraroli


Managing partner

LED Taxand

T: +39 335 12 30 531


Guido Arie Petraroli is the managing partner and co-founder of LED Taxand. He began his career at Andersen Legal in 1990 and continued his practice in Ernst & Young’s tax department from 1999. From 2003 until 2017 he worked for Fantozzi & Associati, where he served as a Partner.

Guido has over 30 years’ experience advising Italian and large multinationals and institutional investors on a wide range of tax matters. He focuses on private equity transactions, including acquisition finance and real estate finance. He also has extensive experience in international tax planning, mergers and acquisitions (M&A), real estate transactions and reorganisations.

Guido holds a degree in economics from Università Cattolica del Sacro Cuore in Milan and a master’s degree in corporate tax law.

Francesco Cardone


Junior partner

LED Taxand

T: +39 347 30 47 058


Francesco Cardone is a junior partner at LED Taxand. He joined the firm in 2018 after working with Baker & McKenzie Amsterdam and Fantozzi & Associati, where he was a senior associate until December 2017.

Francesco advises domestic and foreign companies on corporate taxation, international taxation as well as on M&A. He has also gained extensive experience in relation to real estate transactions and mutual agreement procedures.

Francesco obtained a law degree from the University of Turin and a LLM in international tax law from the International Tax Centre of Leiden.

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