Italy
Answer ... The impact of the Covid-19 pandemic is evident in the foreign direct investment segment and consequently in the M&A market, which up until January 2020 had seen foreign venture capital firms and/or foreign buyers play an active role. However, interest appeared to pick up again in the last quarter of 2020. Conversely, in the domestic sphere, given the average size of a typical Italian business – which has an average annual turnover of between €50 million and €150 million – a continuous process of aggregation is underway, due to the need for Italian companies to enhance their competitiveness at the international level and/or for family businesses to find a solution to generational change.
In the first nine months of 2020, 537 deals were formally closed in Italy, compared to 810 in September 2019 (-33.7%). The slowdown was also significant in terms of total value, which amounted to €28.5 billion, compared to €35.2 billion in the first three quarters of 2019 (-19%).
The Italian M&A sector is adapting to the crisis; but despite a final rush to complete some mega deals – for example, Intesa San Paolo acquired UBI Banca for €4.2 billion, and Giuliana Albera Caprotti and Marina Caprotti acquired 30% of Supermarkets Italiani SpA from Violetta and Giuseppe Caprotti (Esselunga) for €1.8 billion – the total value of deals closed in 2020 was €32 billion, down 28% on 2019.
However, despite the great challenges of 2020, the Italian real estate investment sector remained attractive, confirming its appeal as a market for professional and foreign operators.
Italy
Answer ... One new development, which is expected to act as a great incentive to M&A deals and to boost foreign direct investment, is a provision envisaged in the 2021 budget law which has been long awaited by foreign financial operators active in the private equity sector. It aims to remedy (at least in part) unjustified discrimination that hitherto subjected foreign funds to less favourable fiscal treatment than equivalent investment funds set up in Italy.
Currently, foreign funds investing in Italy are subject to withholding tax at a rate of 26% pursuant to Article 27, paragraph 3 of Decree of the President of the Italian Republic 600/1973. Likewise, capital gains realised as a result of the sale of equity investments in resident companies are subject to taxation in Italy, pursuant to Article 23, paragraph 1, lit (f) of the Consolidated Income Tax Act.
In addition to applying to dividends and capital gains earned by foreign funds that directly hold stakes in Italian companies, the new provision will apply to foreign funds that participate indirectly in Italian companies through sub-holdings located in other EU member states.
In addition, as a result of another recent legal provision, foreign citizens will be able to invest in Italy without the obligation to have a tax code.