The 2021 Italian Budget Law provides for the equal tax treatment of dividends and capital gains earned by Collective Investment Undertakings (CIUs) under foreign law, established in the EU and in EEA States, which allow an adequate exchange of information, to that of the dividends and capital gains realised by CIUs established in Italy, extending the tax exclusions already provided for such income arising from qualified investments in Italian companies.

Former tax regime

It should be recalled that the CIUs established in Italy, although they are in principle included among the taxable persons of the IRES tax referred to in art. 73 of the Consolidated Income Tax Act (TUIR), do not suffer any taxation on their income (including dividends and capital gains) as they are expressly exempted from the income tax, pursuant to paragraph 5-quinquies of the same art. 73, provided that the collective undertaking, or the entity in charge of its management, is subject to prudential supervision. In particular, the exemption scheme provided for in the case of CIUs applies exclusively to organisations which meet the requirements of Civil Code, so that collective savings management can take place.

Moreover, the same paragraph 5-quinquies of art. 73 of the TUIR provides that the funds, qualifying themselves as “lordisti” (i.e., investors to whom the capital gains arising from the investment in financial instruments are taxed under the regime of the declaration), with certain exceptions, do not suffer any withholding tax on the income from the capital received. Therefore, dividends distributed by Italian companies in favour of regulated funds established in Italy are not subject to the withholding tax referred to in art. 27 of D.P.R. n. 600/1973.

On the contrary, in the scheme in force until December 31, 2020, the dividends paid by resident companies in favour of foreign CIUs remained subject to withholding tax, to the extent of 26% pursuant to art. 27, paragraph 3, of D.P.R. n. 600/1973, without prejudice to the possible application of the reduced rate provided for by the Conventions against double taxation concluded by Italy.

New foreign CIUs tax regime

With the 2021 Budget Law, paragraph 3 of art. Art. 27 of D.P.R. No 600/1973 which regulates the withholding tax applied by companies as a tax on profits in any form whatsoever is integrated. So, from January 1, 2021, the taxation shall no longer apply to profits paid by foreign CIUs that meet the legal requirements.

In this regard, it was confirmed that since the provision applies to profits “received” from January 1, 2021, the cash principle applies, regardless of the period of formation of the profits or the related distribution resolution.

The new legislation certainly has the advantage of overcoming the discrepancy in treatment between the tax regime reserved at the exit to CIUs established in Italy and the one provided for foreign CIUs also in response to the infringement procedure by the European Commission. In addition, the new legislation, removing discrimination between Italian and European funds, could encourage the latter to invest in Italian companies, with a clear benefit for the country.