Withholding tax exemption on dividends and capital gains for non-resident investment funds | Hogan Lovells

The 2021 Italian Finances Regulation aligns the tax therapy relevant to EU funding funds with the tax therapy relevant to Italian funding funds.

The 2021 Italian Finances Regulation marks a major turning level within the taxation of:

1. non-Italian undertakings for collective investments (so-called UCITS) compliant with EU Directive 2009/65/EC (the so known as UCITS Directive) and
2. funding funds not compliant with the talked about directive having a supervisor topic to regulatory supervision within the international nation of firm in accordance with Directive 2011/61/EU (so known as AIFMD Directive),

established within the EU and EEA States that permit for an enough alternate of data.

Thus far, otherwise from Italy primarily based UCITS that are exempt from earnings tax in Italy, non-Italian UCITS had been topic to Italian taxation on Italian supply dividends distributions and on Italian supply capital good points associated to qualifying shareholdings.

With 2021 Finances Regulation the Italian legislator aligns the tax therapy relevant to the above classes of non-Italian UCITS with Italian UCITS, thus remedying the evident discrimination applied in opposition to the previous.

Extra intimately, the Finances Regulation particularly gives that the above talked about non-Italian UCITS will not endure the withholding tax in any other case relevant on dividends obtained (ranging from the entry into power of the Finances Regulation itself), nor will likely be taxable on capital good points realized in relation to Italian qualifying shareholdings (after the entry into power of the 2021 Finances Regulation).

The legislative modification at hand follows the consolidated strategy adopted by the European Court docket of Justice on discriminatory tax therapy, based on which the appliance of tax regimes that are extra burdensome for EU funding funds resident in a State apart from that of the supply of earnings represents a violation of the precept of free motion of capital regulated by artwork. 63 of the Treaty on the Functioning of the European Union (see Instances C-480/16, Constancy Funds and C-156/17, Ka Deka).

Though the Italian legislator’s efforts are extraordinarily welcome, not less than two points stay open: the primary referring to the doable discrimination of funds resident in third nations and the second referring to earnings earned earlier than the entry into power of Finances Regulation by non-Italian UCITS that may now profit from a full tax exemption.

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