A NEWSLETTER prepared by Graham & James LLP, Milan Office

November, 1999

NEW DOUBLE TAXATION TREATY BETWEEN ITALY AND THE US. On August 25, 1999 Italy and the United States signed a new Double Taxation Treaty in Washington. Among other concerns, the new treaty is meant to recognise the recently adopted Italian Tax on Regional Productive Activities (IRAP) for US/ITA double-taxation purposes. Specifically, only a portion of the IRAP paid by US entrepreneurs in Italy, based on a certain formula, will be credited against US taxes. The new treaty has provided the partners with the opportunity to reconsider provisions regarding tax avoidance aspects by adopting US anti-treaty shopping tests. The new treaty will become effective when the two countries exchange the ratification instruments.

The main provisions include:

(1) Dividends: If the recipient of the dividend is the beneficial owner, the new withholding tax rates apply as follows: 5% of the gross amount of the dividend is withheld if the recipient is a company which owns at least 25% (50% under the preceding tax treaty) of the voting stock of the payor company for a twelve-month period ending on the date the dividend is declared. A 15% withholding tax broadly applies in all other circumstances.

The Branch Profit Tax applies on a 5% tax-rate basis as an add-on to the ordinary corporate income tax of the branch which resides in the US or Italy (currently, only the US has laid down specific legislation on the Branch Profit Tax).

(2) Interest: The new withholding tax equal to 10% of the interest to be paid (15% under the preceding tax treaty) applies under general conditions to the extent that the interest does not exceed the fair market value of the transaction. Otherwise, either taxation on re-characterised income or, in its absence, domestic legislation on withholding tax on interest will apply.

(3) Royalties: If the recipient is the beneficial owner of the royalties, the source-country withholding tax generally may not exceed 8% of the gross income. A 5% withholding tax limitation applies to royalties for the use of (or the right to use) computer software or industrial, commercial, or scientific equipment. A total exemption applies for the use (or right to use) of a copyright of literature, artistic, or scientific work, provided that it does not derive from computer software, motion pictures, films, tapes, or other means of reproduction used for radio or television broadcasting. The text of the new treaty can be found at http://www.amcham.it in the section US-Italy News.

CODE OF CONDUCT FOR LISTED COMPANIES. The Committee for the Corporate Governance of Listed Companies has drafted a Code of Conduct for Listed Companies. The Code, which is voluntary and not mandatory, sets out some principles to which listed companies should conform. The Committee considered self-regulation of listed companies as the best way to avoid binding rules which might limit the company’s organizational options, while reassuring investors that listed companies comply with the best practice standards.

Various aspects of corporate governance are tackled by the Code, such as the following:

Role of the Board of Directors: the main responsibility of the Board of Directors is to set the company’s strategic goals and to pursue their achievement. Directors should be well informed about the facts, should make independent decisions and should seek to create value for the shareholders.

Composition of the Board of Directors: the members of the Board of Directors should be executive directors (i.e. hold managing positions within the company), as well as non-executive directors. A fair number of non-executive directors should be independent, and therefore should not maintain any business relationship with the company, its shareholders, its subsidiaries or its executive directors which impairs their independence, nor should they own a quantity of shares which enables them to control the company.

Information to be provided to the Board of Directors: the executive committee and the managing directors should inform the Board of Directors of all relevant or unusual transactions.

Confidential information: all confidential information received by the Board of Directors, and especially price-sensitive information, should be carefully handled by directors according to specific internal procedures to be adopted.

Appointment of directors: appointment of directors should follow a careful evaluation of the character and professional qualifications of the candidates.

Remuneration Committee: the issue of remuneration of directors should be dealt with by a remuneration committee within the Board of Directors, which may employ external consultants.

Internal Control Committee: the managing directors should define internal procedures and an internal-control system in order to check compliance with such procedures. An internal-control committee should be established within the Board of Directors to supervise the internal-control system.

Relations with Institutional Investors and Other Shareholders: the Chairman of the Board of Directors, as well as the managing directors, should develop a dialogue with the Shareholders, possibly by establishing a specific body entrusted with this function.

Shareholders’ meetings: attendance at shareholders’ meetings should be encouraged and the meeting should be conducted in an orderly fashion to enable Shareholders to address all matters on the agenda.

Members of the Board of Auditors: appointment of auditors should follow a careful evaluation of the character and professional qualifications of the candidates. Auditors should be independent and should comply with procedures protecting the confidentiality of information.

The Code of Conduct can be found at http://www.borsaitalia.it.