The Italian budget law for 2016, Law n. 208 of December 2015
("the Budget Law"), passed by the Italian Parliament on
December 22, 2015, repealed Italy's tax "blacklist"
rules. Such changes will remove significant limitations of doing
business with previously blacklisted jurisdictions and, taken
together with the Italian Government's 2015 tax information
exchange agreements signed with Guernsey and Jersey, should soon
make Guernsey and Jersey eligible for Italy's
"whitelist" and the favorable tax rules governing the
treatment of interest received from government bonds and listed
The Italian Government had previously maintained a formal
blacklist identifying certain countries that do not provide
adequate fiscal or financial information on companies that are
resident and doing business in those jurisdictions. Italy has over
the years listed dozens of blacklisted countries. A significant
limitation of being included on the blacklist had been that costs
and expenses paid to residents of blacklist countries were
nondeductible or since 2015 deductible but with certain
limitations. In addition to the Italian blacklist rules, Italy also
taxed income earned by Italian-owned subsidiaries in blacklisted
countries or in low-tax countries (so-called "controlled
foreign corporations" or "CFCs"). Moreover,
residents of blacklisted countries were ineligible for certain
Italian tax regimes, such as the reduced withholding on the receipt
of interest from the Italian government or listed companies or of
proceeds from certain other notes; such benefits were limited to
countries listed on a separate whitelist.
The 2016 Budget Law repeals the blacklist rules restricting the
deductibility of costs and expenses and those deeming blacklist
countries to be CFCs. As a result, as of January 1, 2016, the only
criterion for the application of Italy's CFC regime is the
"low level" of corporate taxation of the CFC in its
country of residence—i.e., a rate that is 50 percent or lower
than the Italian corporate tax rate (currently 27.5 percent).
The blacklist repeal opens up the possibility that previously
blacklisted countries may be eligible for inclusion in Italy's
whitelist. In November 2015, the Italian Government approved
Legislative Decree No. 147 ("Decree promoting growth and
internationalization"). The changes introduced by this decree
include the rewriting of Legislative Decree No. 239 of 1996 (which
sets the rules for taxation of interest from bonds and similar
notes issued by Italian issuers ). After this change, an exemption
from the Italian withholding tax extends to "countries
contained in the whitelist that allow an adequate exchange of
information" with the Italian Tax Authorities. The whitelist
is to be updated every six months by Ministerial Decree, so as to
include all the (new) countries that from time to time meet the
requirements and that are therefore to be considered as
During the second half of 2015, a number of Tax Information
Exchange Agreements ("TIEAs") have been ratified by the
Italian Government, including with Guernsey and Jersey (both
entered into force on June 30, 2015). Following these developments,
the governments of Guernsey and Jersey made formal representations
to the Italian Authorities expressing the view that, given the
level of cooperation attained in the exchange of tax information,
both upon request and automatically, there is no longer
justification for their not being included on the Italian
It would indeed seem that after the entry into force of their
TIEAs, both Guernsey and Jersey should meet the requirements to be
considered "countries that allow an adequate exchange of
information with the Italian Tax Authorities" pursuant to
applicable Italian law and, therefore, they should meet the
requirements to be also included in the Italian whitelist. However,
in order to be legally considered white-listed for purposes of
Italian Tax Law, a country's formal inclusion in the whitelist
is required and, to this end, a specific Italian regulation must
first be enacted. This has not yet occurred, but it is reasonable
to expect that in the first half of 2016 the Italian whitelist will
be updated. As of today, however, it is not possible to predict
exactly whether and when Guernsey and Jersey will actually become
whitelisted for purposes of Italian Tax Law.
Andrea Venturini, of the Milan Office assisted in the
preparation of this Alert.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Cyprus Tax Department recently issued Forms T.D 38, T.D 38Qa and T.D 38Qb applicable to individuals being Cyprus tax residents but non-Cyprus domiciled.
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