Legal development

Budget Law Series

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    Law No. 197 of 29 December 2022 (the "Budget Law 2023"), which came in force from 1 January 2023, provides for relevant tax measures which might be interesting for international players with Italian operations. The document at hand provides an overview of certain new tax provisions, dealing specifically with the following (i) the new property richness rule; (ii) the introduction of an investment management exemption; (iii) collective investments undertakings and insurance products; and (iv) the new tax regime for crypto-activities.


    Article 1, paragraph 96, of the Italian Budget Law for 2023 extends the scope of application of the domestic capital gain taxation to capture gains from indirect sales of property rich companies.

    According to previous rules, capital gains derived from non-Italian companies were out of scope of Italian taxation, whether or not they hold Italian real estate properties.

    In line with BEPS Action 6 and Article 13 of the Multilateral Instrument, as a result of the new provisions in the budget law capital gains would become taxable under domestic rules if resulting from the sale of an entity which derives more than 50% if its value from Italian real estate properties (including land).

    Unless double tax treaty provisions apply contemplating taxation only in the country of residence of the seller, the capital gain may be subject to tax in Italy at a 26% rate.

    1. The capital gain tax will be triggered when the following requirements are fulfilled: 1. the participation in the non-Italian entity is transferred in exchange resulting in a capital gain for the non-Italian seller;
    2. at any point in time during the 356 days preceding the sale, the value of the non-Italian entity predominantly (ie for more than 50%) derives, directly or indirectly, from Italian real estate properties (i.e. the "property richness" test).

    Taxation is still excluded if the participations being sold are listed on regulated markets or are disposed of by EU or EEA qualifying collective investment undertakings.

    For the purposes of the property richness test, the value of properties treated as goods or being used in the context of a business activity is not counted.

    In essence, the new rules would not result in additional taxation in Italy for sellers who are entitled to benefit from a double tax treaty contemplating exclusive taxation in the country of the seller (other than treaties with property richness provisions).

    On this basis, the ratification of the MLI should not affect treaty eligible sellers as long as Italy confirms the current reservation about article 13 of the MLI. However, considering the approach just adopted through the introduction of the domestic property richness test, it cannot be excluded that the reservation above to the MLI might be reconsidered.


    Article 1, paragraph 255, of the Italian Budget Law 2023 provides the so-called investment management exemption, amending Article 162 of the Italian Income Tax Code, which contains the domestic definition of permanent establishment. A new safe harbour provision has been introduced providing cases in which a non–resident investment vehicle is not attributable with a permanent establishment in Italy as a result of the activity carried out within the territory by its asset manager (or any other entity acting on its behalf).

    The provision remains quite vague, though the explanatory report suggests that the term 'investment vehicle' should be interpreted in a broad sense, in line with the definition of "institutional investors" provided in article 6, para. 1, lect. b) of the Italian Legislative Decree No. 239 of 1 April 1996, as amended.

    The safe harbour applies if the following requirements are fulfilled:

    • the non-resident investment vehicle and its subsidiary is resident in a State or territory allowing for the exchange of information with the Italian tax authorities;
    • the non–resident investment vehicle is independent from the asset manager within the meaning that will be specified by an implementing ministerial decree yet to be approved;
    • none of the directors of the non-resident investment vehicle hold any position in the asset manager and the latter does not hold more than 25 per cent of the vehicle's shares;
    • the remuneration of the asset manager has to be supported by the appropriate transfer pricing documentation, according to the Italian Law and tax authorities guidelines.

    Provided that the requirements above are fulfilled, the new rule goes as far as to say that the place of business in Italy of an Italian company is not attributable to the non-Italian resident investment vehicle even if the local company's activity brings value to such investment vehicle.

    This exemption is aimed at attracting managers to live and work in Italy and at increasing the legal certainty for the financial services industry to operate and invest in the country.

    However, the third requirement above about the directors not holding any position in the asset manager, seems not to be in line with business models widely adopted and, at least in the private equity field, could be unlikely to be met.

    Managers, in fact, typically take part in the decision-making process of the target companies (generally becoming members of the local company's board) as a way to ensuring consistency and alignment with the manager's strategy and bringing added value to the target company, so that the latter may operate in line with the wider strategy of the manager.

    Thus, if this exemption, on the one hand, introduces a safe harbour, on the other hand it may not have wide application as long as the requirement for local directors not to be members of the management team remains in place without any flexibility.

    Existing structures should be carefully analysed in the light of these new rules, which refine the concept of permanent establishment in a particular field that was already attracting close attention from the tax authorities.


    Article 1, paragraphs 112 - 113, of the Italian Budget Law for 2023 grants, inter alios, individuals, non-commercial partnerships and non-commercial entities with an option to pay a reduced upfront tax on latent gains or proceeds accrued on units or shares of undertakings for collective investment, i.e. collective investment funds (including real estate funds), SICAV and SICAF (the Funds) held as of 31 December 2022.

    The option should apply in relation to units or shares of Italian, EU and non-EU Funds, held until the exercise date. The election is made for units and shares belonging to the same category (which reference would hopefully be clarified by the Revenue Agency).

    The reduced upfront tax rate is equal to 14% of the positive difference between:

    • the value of units/shares registered at the date of 31 December 2022, and
    • the purchase/subscription cost held by the investor.

    The 14% taxation would replace a higher (generally 26%) future taxation on latent proceeds or gains, which would be due upon liquidation, sale, disposal, etc. of the relevant investment.

    The election notice must be filed by 30 June 2023 with the qualifying intermediary entrusted for the custody, administration or deposit of the units or shares and payment should follow by 16 September 2023.

    If the units/shares are held abroad and no Italian intermediary acting as tax agent is involved, the investor would exercise the option in the annual tax return filed for income tax purposes. In the latter case, the payment should be made together with the income tax settlement payment.

    The option cannot be exercised for units or shares held in a portfolio management for which the managed savings option has been exercised.

    A similar 14% option is available for qualifying insurance products.

    Whether the elections convenient or not depends on, inter alia, the past and the expected performance of the relevant Fund and the relevant investment strategy.

    For completeness, please note that a 16% step-up option is available on shares (including listed shares) held in companies as of 1 January 2023.


    Article 1, paragraphs 126 – 147, of the Italian Budget Law for 2023 fills a gap in the Italian tax framework setting out a dedicated tax regime for investment in crypto-activities made by individuals, non-commercial partnerships and non-commercial entities.

    A crypto-activity is a digital representation of value or rights which can be transferred and/or stored electronically through a distributed ledger or an equivalent electronic means.

    A 26% taxation has been introduced on proceeds realised through transfer, liquidation, exchange or similar disposals of crypto-activities exceeding, as long as such proceeds exceed the overall amount of EUR2,000 in a given fiscal year. The exchange of crypto-activities having similar functions and features should not result in a capital gain.

    Capital losses can be offset against capital gains and, if exceeding EUR2,000, carried forward to be offset in future fiscal years up to the fourth.

    Capital gains are calculated as the positive difference between the consideration received (whether in cash or in kind) and the fiscal cost (i.e. typically the purchase price).

    The fiscal cost in case of inheritance or donation is determinate as follows:

    1. in case of inheritance, taking into account the cost regulated for the purposes of the inheritance tax (if available) or the value declared at the time of the inheritance;
    2. in case of donation, the cost originally borne by the donor.

    For completeness, positive and negative components resulting from the evaluation of crypto-activities at year-end are not tax relevant until the activities are disposed of, sold or liquidated (this principle also applies for the purposes of the Italian corporate taxes).

    As part of this legislative package on crypto-assets, an opportunity to step up the fiscal value of the crypto-activities up to their market value registered on 1 January 2023 has been contemplated. This step-up option requires the payment of a 14% tax on the increased value of the activities. The payment should be made in full by 30 June 2023 or diluted in three equal annual instalments. Interest accrues on the second and third instalment at a rate of 3%. Future capital losses cannot be offset against capital gains up to the amount of the step-up.

    Furthermore, a voluntary disclosure procedure is made available to individuals, non-commercial partnerships and non-commercial entities holding crypto-activities on or before 31 December 2021. The procedure is aimed to cure an infringement which was not explicitly contemplated by the law and is advisable for those who did not disclose foreign crypto-activities in their annual tax returns. The procedure allows individuals, non-commercial partnerships and non-commercial entities to cure any infringement caused from the omission to report those activities which have been legally acquired (the burden of the proof to demonstrate the legitimate source of the activities is on the taxpayer). The procedure is completed through the payment of:

    • a 0.5% tax on the value of the crypto activities at the end of each fiscal year to cure the omitted reporting;
    • an additional 3.5% substitute tax on the value of the crypto-activities held at the end of each year or until their disposal or liquidation.

    Payments above would also absorb interest and penalties.

    Finally, a stamp duty charge has been provided on crypto-activities for an overall annual amount of 0.2% of the value of these activities. The charge should now be applied by the taxpayer directly in the annual tax return.

    Authors: Michele Milanese, Partner

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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