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Massimo Agostini |
Pursuant to article 73, paragraph 3 of the Italian Tax Code a company is generally considered to be resident in Italy for income tax purposes if either:
its legal seat;
its place of effective management; or
its main business purpose is located or carried out in Italy for the greater part of the fiscal year.
Article 35, paragraphs 13 and 14, of Law Decree 223 of July 4 2006, converted with amendments by Law 248 of August 4 2006 (the decree), enacted a specific presumption for a foreign company (the foreign holding) that would own – at the end of its fiscal year – stock in at least one Italian company, sufficient to give to the said foreign holding control of the said company. Such control is pusuant to article 2359, paragraph 1, sub paragraph 1 or 2, of the Italian Civil Code which is stock granting either:
more than 50% of the voting rights on the ordinary shareholders meeting; or
a substantial amount of voting rights, where no shareholder would have the majority mentioned above on the said Italian company.
Effective as from the first fiscal year closed on or after July 4 2006 pursuant to article 35, paragraph 13, of the decree a foreign holding would be presumed to have its place of effective management in Italy and, therefore, to be resident in Italy for tax purposes if at the end of its fiscal year either:
it is directly or indirectly controlled – pursuant to article 2359, paragraph 1, sub paragraph 1, 2 of 3, of the Italian Civil Code – by Italian-resident persons; or
the majority of its directors are Italian-resident persons.
The above presumption can be rebutted by the foreign holding, if it is able to prove that its place of effective management is located outside of Italy instead.
Article 35, paragraphs 13 and 14, of the decree would apply also to a company controlling a foreign holding, once such foreign holding would be successfully deemed to be resident in Italy for tax purposes.
A foreign holding that is successfully deemed to be resident in Italy for tax purposes would be subject to all the tax obligations provided for by Italian law, including the obligation to apply Italian withholding tax rules on any payments of interest and/or royalties and/or dividends.
The Italian Tax Authorities have expressed the view (Circular 28/E of August 4 2006) that article 35, paragraphs 13 and 14, of the decree complies with both the EU legislation and the tax treaties entered into by Italy. It is likely however, that this conclusion could be successfully challenged.
Massimo Agostini (magostini@gop.it), Rome
