Studio Associato Legale Tributario
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Law No. 19 of January 9, 1991 ruling border areas (Provisions for the Development of Business Activities and International co-operation of the region Friuli-Venezia Giulia, Province of Belluno and neighbouring areas) provides, under Article 3, for the incorporation of the International Financial and Insurance Offshore Centre of Trieste. By means of Decision of April 12, 1995, the Commission of European Communities specified that all individuals and legal persons having their tax domicile in Italy will be entitled to all operations carried out by the Centre and that tax benefits may not exceed Lit. 65 billion and are limited to investments and loans for 3.5 billion Ecu.
Furthermore, the decision under examination establishes that tax benefits will be exclusively reserved to profits deriving from operations undertaken with Central European countries, the Balkans and the former Soviet Union, and only to profits earned in the Centre during its first 5 years of activity.
The Minister of the Treasury issued a draft of the enforcing Regulation which rules the activity of the Service Centre of Trieste.
Although endorsed by other Ministers (Minister of Foreign Affairs, of Finance, of Industry and Foreign Trade), the above Draft Regulation, approved on July 20, 1997 by the Council of State, has not been published in the Official Gazette yet, due to formal discrepancies identified by the General Italian Accounting Office.
Analysis of Implementing Regulation ruling the activity of the Financial and Insurance Service Centre of Trieste
Nevertheless, considering that the procedure is now at a rather advanced stage, the preliminary draft of the text, should not be very different from the definitive one.
The regulation should deal with:
1. the configuration and the functioning of the Committee ex Article 3, paragraph 5 of Law No. 19/1991;
2. the necessary requirements in order to operate within the Centre, in relation to:
b. Stock Brokerage Companies (i.e., SIM), finance and trust companies;
c. companies carrying out trust activities other than those mentioned at point b);
d. companies carrying out insurance and re-insurance activities for the sectors of life and casualty;
3. tax rules.
With reference to the configuration and the functioning of the Committee as set forth by Article 3, paragraph 5 of Law No. 19/1991, the regulation establishes that the Committee is to:
1. supervise the Financial and Insurance Service Centre;
2. grant or deny authorisations to operate within the Centre;
3. control that requirements deriving from rules concerning the Centre are complied with;
4. regulate assessments to monitor investment projects being
5. developed within the Centre;
6. prepare a detailed annual report on the Centre's activities.
Furthermore, a general prescriptive power is granted to the Committee, with respect to some specific issues connected to management of financial, administrative and organisational aspects of the Centre.
Pertaining to the Committee's disciplining rules, on the whole, no significant modifications may be identified, with respect to what was already provided for by Article 3, paragraph 5 of Law No. 19/1991.
On the contrary, a remarkable change is represented by the introduction of a Board of Statutory Auditors, to which no mention was made in the above cited law.
a. According to the regulation, such Board of Auditors should:
b. carry out management control;
c. ascertain that accounting records are properly kept;
d. examine Financial Statements drawn up by the Committee;
e. carry out periodical cash inspections;
f. perform inspections and controls.
The other provisions contained in the first part of the regulation concern the incompatibility of the various positions within the Centre, the dissolution of the Committee (in case of serious and repeated irregularities), the publication of relevant measures in the Official Bulletin of the Centre.
As to required conditions in order to operate within the Centre, Law No. 19/1991 establishes that only some specific entities such as credit institutions, Stock Brokerage Companies, finance companies, trust companies, entities and insurance companies may operate within same.
For each of the above categories, the regulation establishes the requirements which are necessary in order to be admitted to the Centre.
For the purposes of identifying said prerequisites, the regulation clearly recalls what was already provided for by Law No. 19/1991, which required that persons admitted to the Centre established within the same Centre their "subsidiaries, associated or affiliated companies (permanent establishments)".
In addition, the regulation states that the assessment of the existence of the above conditions by specific competent authorities be enclosed to the requests for authorisations to operate within the Centre.
Authorities empowered to assess the existence of the above conditions are:
1. the Bank of Italy for banks;
2. Securities and investment Board for Stock Brokerage Companies, trust companies registered in the special section of the Register as at Article 9 of Legislative Decree No. 415 of 1996, as well as for finance companies;
3. the Ministry of Industry for trust companies ex Article 1 of Law No. 1966 of 1939, other than those listed at point 2);
4. the Supervisory Body for Insurance Entities and Companies ("ISVAP").
For extra-EU companies, the regulation establishes that, in order to obtain authorisation to set up subsidiaries, associated, and affiliated companies within the Centre, the competent authorities already mentioned, have to verify the existence of control methods in the countries of origin equivalent to those provided for by Italian provisions.
Finally, persons admitted to the Centre, are required to keep appropriate and separate accounting records concerning the activity carried out therein by the subsidiaries.
As to tax provisions, the regulation under examination, governs the tax treatment of entities and individuals which are members of the Centre, restricting the application of tax benefits to "income produced within the centre", i.e., income produced by activities carried out therein, as expressly required by the EC Commission.
Furthermore, the regulation is mainly patterned after principles already set forth by Law No. 19/1991 (Article 3, paragraph 4).
Pertaining to tax benefits, Article 30 of the regulation expressly provides that, strictly with respect to operations carried out with the above mentioned countries, income produced within the centre is exempt for IRPEG (corporate income tax) purposes and is, on the other hand, subject to ILOR (local income tax) at the reduced rate of 50%.
It should be remembered that starting from January 1, 1998, ILOR shall no longer be applicable and will instead be replaced by IRAP (Regional Tax on Productive Activities), ex Article 36, Legislative Decree of December 18, 1997, No. 446. Said Decree, nevertheless, does not grant any tax benefits for IRAP purposes to the Offshore Centre.
Moreover, the provision according to which tax benefits within the Centre may not exceed the amount of Lit. 65 billion and are limited to investments and loans for 3.5 billion Ecu, surely arises from the need to conform to European Community Commission guidelines.
Such provision is based on the rule established in Decision of April 12, 1995.
The regulation provides various other rules concerning several issues, which surely constitute an innovation when compared with the contents of Law No. 19/1991.
Persons operating within the Centre, i.e., are subject to registration, cadastral tax and mortgage taxes, on a fixed basis.
In order to avoid double taxation, a rule has been provided to promote an exchange of information between the Ministry of Finance and the competent Tax Authorities of other States, with which a tax treaty is in force.
Finally, the regulation states that in the case where persons operating within the Centre carry out activities generating income subject to ordinary taxation, such persons have to keep accounting records so as to determine the part of profits attributable to activities undertaken within the Centre. In any case, the above mentioned persons may not offset income subject to ordinary taxation against income subject to tax benefits.
Such kind of provision arises from the need of transparency which perfectly espouses rules already examined, such as, the introduction of a Board of Statutory Auditors aimed at effecting strict accounting checks, or the obligation of the Committee to submit an annual report on the activities being carried out by the Centre, or to rule the monitoring of investments effected within the Centre.
Should revenue and cost components refer without distinction to activities or assets both generating income subject to ordinary taxation and income subject to reduced taxation, the regulation specifies that Article 75, Paragraph 5 IITCT is to be applied.
In view of the above, it is quite clear that the Discipline ruling the functioning of the Trieste Offshore Centre, provided for by the Draft Regulation under examination, refers to what has already been established by Law of January 9, 1991 which originally introduced the Centre.
The publication on the Official Gazette of the Regulation shall validate the institution of the Trieste Offshore Centre which shall be representative of a brand-new instrument to promote all enterprises which have undertaken or intend to undertake activities with Eastern European countries.
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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