Global Tax Alert | 15 August 2013

Italy publishes final Exit Tax decree

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On 12 August 2013, the decree (Decree) implementing new rules1 regarding the income tax treatment of the migration of Italian companies was published in the Italian Official Gazette n. 188/2013.

A draft Decree was previously circulated and the relevant content was disclosed by the Italian press on 10 July 2013 while awaiting final publication.2

The official version of the Decree (dated 2 August 2013) confirms the content set forth by the circulated draft version and confirms that instructions will be issued by the Revenue Agency on practical aspects of the regime.

In short, the Decree provides that Italian companies shifting their tax residence to a qualifying country3 may elect for:

  • Immediate levy on the deemed realization gain
  • Payment of the exit tax in ten annual installments (with interest and guarantee)
  • Deferral of the exit tax payment to the moment of actual realization (with guarantee and periodic information obligations).

Under any elections, the exit tax liability should be determined on the basis of the fair market value of the assets/going concern at the date of the migration.

The migrating entity may mix the above elections with reference to different assets.

With reference to option 3 (Deferral), the moment of actual realization of the gains related to the migrated assets is identified in compliance with the rules included in the Italian income tax code (e.g., the sale of the underlying assets or going concern).

The Decree also establishes that the Revenue Agency will issue specific guidance on the formalities concerning the execution of the elections, the payment of the installments, the type of guarantees and the periodical information filings.

Endnotes

1. New rules were issued in response to the European Court of Justice (ECJ) Decision C-371/10 (National Grid Indus). Specifically Law Decree n. 1/2012 introduced the possibility for companies transferring their tax residence to EU or qualifying European Economic Area (EEA) countries, to defer the exit taxation until the underlying capital gain is actually realized. Under the previous regime, the transfer of tax residence abroad qualified as a taxable event, so that any unrealized capital gain was to be computed on the basis of fair market value principles and taxed immediately. The transfer of the residence was (and is still) not considered a taxable event only to the extent that the assets related to the Italian business were (are) attributed to an Italian permanent establishment of the migrating company. For more information, see the EY International Tax Alert, Italy amends exit tax: new opportunities for multinational groups, dated 1 March 2012.

2. For further details on the Decree see EY Global Tax alert, Italy to issue decree on tax migration of companies, dated 11 July 2013.

3. Qualifying Countries includes EU member states and EEA states with which Italy has entered into qualifying agreements concerning exchange of information and mutual assistance in tax collection procedures (currently Norway and Iceland).

For additional information with respect to this Alert, please contact the following:

Studio Legale Tributario in association with Ernst & Young, Milan
  • Domenico Borzumato
    +39 02 851 4503
    domenico.borzumato@it.ey.com
  • Marco Magenta
    +39 02 851 4529
    marco.magenta@it.ey.com
Studio Legale Tributario in association with Ernst & Young, Bologna
  • Mario Ferrol
    +39 335 122 9904
    mario.ferrol@it.ey.com
Ernst & Young, LLP, Italian Tax Desk, New York
  • Emiliano Zanotti
    +1 212 773 6516
    emiliano.zanotti@ey.com
  • Andrea De Nigris
    +1 212 773 0478
    andrea.denigris@ey.com
  • Aldo Bono
    +1 212 773 3216
    baldassare.bono@ey.com

EYG no. CM3736