The Italian Budget Law for 2018 (Law. No. 205 of 27 December 2017) provides for some material changes to the tax regime of dividends and capital gains. In particular, they affect dividends and capital gains arising from “substantial” shareholdings and dividends deriving from entities that are resident of low-tax jurisdictions. LED Taxand, Taxand Italy, discusses the changes to the tax regime of dividends and capital gains under the Italian Budget Law for 2018.
Dividends and capital gains from “substantial” shareholdings
The Italian Budget Law 2018 modifies the tax regime of capital gains and dividends arising from “substantial” shareholdings and concretely aligns it to the one applicable to “portfolio” shareholdings.
In this respect, it is worth remembering that we deal with a “substantial” shareholding if it represents (a) more than 20% (or 2% for listed companies) of the voting rights or (b) a participation to the capital higher than 25% (or 5% for listed companies). Conversely, should these thresholds not be exceeded the relevant shareholding qualifies as a “portfolio” shareholding.
The new regime affects (a) resident individuals who do not hold the shares in connection to a business activity, and (b) non-resident persons (individuals or entities) that do not hold the shares through an Italian PE.
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The Italian Budget Law for 2018 also introduced a new rule whereby dividends distributed by a company that is a resident of a low-tax jurisdiction benefit from 50% exemption in the hands of the Italian resident company who receives such dividends, if it is demonstrated that the distributing company runs a core business activity that is actually tied to the local market of the jurisdiction where it is a resident. Moreover, if the Italian company controls the distributing foreign company, it shall also be entitled, in principle, to an indirect tax credit for up to 50% of the underlying foreign corporate tax paid by the distributing company
