The election for the regime may be extended to family members through the payment on their foreign income of a substitute tax amounting to €25,000 per member.
Despite the terminology, “other income” is not a catchall; rather, under article 67 of the TUIR, the category only encompasses specific sources of income, including — but not limited to — capital gains. In both the Milan and Pescara cases, a comparison of French and Italian businesses demonstrated that French companies are more heavily taxed than Italian entities on capital gains from qualified shareholdings. If DTT protection is not available because of unusual provisions, nonresident shareholders may wish to consider whether to take advantage of this optional tax step-up regime to avoid (or reduce) the tax burden on prospective capital gains from the sale of unlisted shares. Anticipating the ruling, Italy changed the withholding tax regime just before the CJEU issued the decision, introducing a reduced 1.375 percent withholding tax rate (now 1.2 percent) for outbound payments to European Economic Area companies so that the tax treatment of EU and EEA outbound dividends is in line with the treatment of domestic dividends, thus eliminating the alleged discrimination. In light of the above, ETR on capital gains (realized by nonresidents on qualified shareholding) will actually rise from 13.95 percent to 26 percent beginning in 2019. Italy: Tax measures in Budget Law 2019 Changes to Italy’s corporate income tax (IRES) and regional tax (IRAP) were enacted by Law no. Absent treaty protections, the amendments to the capital gains tax regime introduced by the 2018 Italian budget law create a de facto increase in the potential tax burden on nonresidents selling qualified shareholdings — from 13.95 percent to 26 percent. Also, the court declared that interest on tax repayments the ITA owed the claimant must be calculated as of the payment date, and not, as the provincial tax court had previously held, from the date of the claim submission. *TB percentages applicable to resident individuals apply also to nonresidents. See Table 2. French shareholders may refer to the Italian lower tax court rulings discussed above — that is, those holding Italian tax provisions in breach of EU principles regarding the freedom of establishment and free movement of capital — to attempt to address the historically atypical, negative effect of the France-Italy DTT provisions on capital gains taxation following the alienation of shares. Some of Italy’s DTTs foresee measures waiving — if specific conditions are met — the ordinary procedure provided for in article 13(5) of the OECD model. The sale income (that is, capital gain) earned by a nonresident company without a PE in Italy is not classified as business income, but rather recognized (and taxed) as “other income” (of a financial nature) under the Italian tax rules for resident individuals.
To minimize or eliminate the local tax impact, nonresidents owning unlisted Italian shareholdings may wish to elect the revamped tax step-up regime to adjust shareholdings to a fairer market value. 1000. The application of this relief, in the form of a substitute tax, applies on condition that: This means a French company selling a qualified (substantial) shareholding owned by an unlisted (non-real-estate) Italian company cannot benefit from any treaty protection — Italy will tax them in accordance with the above-illustrated domestic rules (that is, an effective tax rate of 13.95 percent in 2018 and 26 percent beginning in 2019). Under article 87 of the TUIR, the participation exemption regime basically applies if: 3a) was engaged in a true business activity; and. The Provincial Tax Court of Milan upheld the taxpayer’s appeal and ordered the ITA to provide a tax reimbursement on capital gains to the French company. Further, only the Regional Tax Court of Pescara addressed the issue of the overall tax impact on capital gains in both France and Italy. On the other hand, Italian resident companies can benefit from a participation exemption regime if specified conditions are met. Domestic legislation (as clarified by Italian tax authorities in Circular Letter 52/E of Dec. 10, 2004) provides that, when determining whether a sale involves a qualified shareholding, all sales that occurred within 12 months of the date of the first sale must be taken into account, even if the sales involved different purchasers.
The above formal discrimination would materialize should French domestic legislation foresee a participation exemption regime to the French shareholder. Because the ITA did not respond to the taxpayer referenced above, the taxpayer raised a tax dispute asserting that the Italian tax provisions breached the freedom of establishment principle under article 49 of the Treaty on the Functioning of the European Union.
On December 24, 2019, the Italian Parliament approved the Budget Law for 2020, which contains a package of tax increases and decreases with varying effective dates, described below.  See, e.g., SECIL, C-464/14 (CJEU 2016); Emerging Markets Series of DFA Investment Trust Company, C-190/12 (CJEU 2014); Test Claimants in the FII Group Litigation, C-35/11 (CJEU 2012); Marianne Scheunemann v. Finanzamt Bremerhaven, C-31/11 (CJEU 2012); Holböck, C-157/05 (CJEU 2007); Commission v. Italy; and Baars, C-251/98 (CJEU 2000). Taxpayers may access to the regime submitting an advance tax ruling to the Italian Revenue Agency or exercising the option for substitute taxation in their tax return.
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