Presentation delivered during my visiting Professorship in Vaduz in June 2019. I discussed the latest development of the Italian "Growth Decree" and the consolidated anti avoidance provisions in force.

1. 1
Executive Master of Laws (LL.M.)
in International Taxation
Modul 6: Internationale Steuerplanung: Finanzinstrumente: FL, AT, CH,
DE, FATCA, IGA, QI und Lux-Steuerrecht

2. 2
Prof. Dr. Marco Greggi
Professor of Tax Law
University of Ferrara
Departement Law
Ferrara, Italy
27. June 2019
Executive Master of Laws (LL.M.) in International Taxation
Modul 6: Internationale Steuerplanung: Finanzinstrumente: FL, AT, CH, DE,
FATCA, IGA, QI und Lux-Steuerrecht
Themenabend: Nationales und Internationales Steuerrecht (With a
Specific Focus on the Incentives for inbound individuals): Italien

3. Programme
of the Meeting
1. Italian Tax System (in a Nutshell):
• Basics on taxation in Italy;
• Basics on International Taxation in Italy;
• Tax Office approach to audits and investigations;
2. Claw-Back Provisions (Tax benefits for Inbound
individuals):
• High Net Worth Individuals;
• Foreign Pensioners;
• Foreign Workers;
• Scientists / Intellectuals (mention);
3. Concluding Remarks:
• Consistency of the System with EU / OECD Provisions;
• Sustainability of the System in the long run.
3

4. Italian Tax System
• Progressive taxation for individuals (up to 43% rate);
• Local and regional surcharges applicable depending on the
Region and the City (example: Lombardy up to 1,74% and
Milan 0,8%)
• Social security contributions charged according to the job and
the amount of salary received (not considered to be part of
the tax system);
• Proportional taxation for corporations: 24%
• Regional Tax on Business activities (IRAP) charged depending
on the activity (around 3,9%, but various factors affect it).
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5. Latest Developments
• The Italian Tax System in the Age of Competition:
1. Massive use of Rulings to facilitate foreign investments in
the Country (since 2016);
2. Group of companies taxation (both domestic and
international) (since 2004);
3. Patent Box / IP Box system (amended in 2019);
4. Branch exemption (2016);
5. Participation exemption (2004);
6. ACE (Aid to Economic Growth – Notional rate to equity
invested) (introduced in 2011 and amended in 2017);
7. Micro-Corporate Tax (as from 2019);
8. “Industry 4.0” Plan (as from 2017).
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6. “Stick and Carrot”
Approach
• Measures addressing :
1. Individuals (allegedly) resident abroad (Article 2, § 2-bis
Income Tax Act, together with Decree 4 may 1999,
amended, aka “Black List” for Individuals);
2. CFC Provisions compliant, inter alia, with OECD state of
the art and EU ATAD-1 Directive;
3. Transfer Pricing operations targeted consistently with
the global state of the art (OECD inspired);
4. Claw back provisions for foreign controlled entities (a
focus);
5. Tight criminal law provisions applicable.
6

7. Entities Claw Back
7
A
B
C
Investments
Investments
a a’ a’’
B
C
CASE 1 CASE 2

8. Tax Audits
Empowerment
• Decree n. 78 passed on July 1st 2009, art. 12:
• Unreported Financial assets and investments
detected in qualified foreign jurisdictions are
considered taxable income upon their assessment;
• Rebutable presumption (Juris tantum);
• Administrative fines, where applicable, are doubled;
• Qualified foreign jurisdictions:
• Blacklisted countries according to all the lists available in
Italy (Liechtenstein is still in included to this purpose in the
only one left).
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9. That is to say …
• Consequences:
• Taxation:
• taxable base of € 200.000 in
year X (approx. € 79.000);
• Administrative fines:
• 240% - 480% of the tax
(allegedly) evaded;
• Criminal charges (if conditions
are met):
• 18 months – 4 years
imprisonment.
9
€ 200.000
Fictitious example

10. Latest from the Courts
• Agusta-Westland case, May 28th 2019, n. 14527
(Italian Supreme Court).
• Application of the Parent-Subsidiary directive (and
DTC Italy – The Netherlands) to outbound dividends;
• Notion of Beneficial owner and Place of effective
management;
• The circumstances of the case …
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11. The Case
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GKN plc
Agusta spa
Agusta Westland NV
Agusta Holding NV
now, Leonardo spa
Participation
Dividends
50%
Actual circumstances might differ. Case edited for teaching purposes. All rights reserved.

12. Personal Conclusions
• Domestic Judiciary Out of Sync ?
• Different position is being taken by the European Court of Justice
(see the very recent “Danish Cases” C-116/16, C-117/16 together
with C-115/16, C-118/16, C-119/16 and C-299/16);
• Factual circumstances play a role (see also the case n. 33234 (Dolce
and Gabbana) decided on December 21st 2018);
• Is this important for Liechtenstein ?
• Yes, Place of effective management benchmarks differ when a
Holding is considered;
• Local structures might be interested.
• Some warnings to the reader:
• Court pinpointed that ratione temporis the claw back provisions (see
slide 9) were not applicable.
12

13. Back on Track:
International Taxation
• Italy dealing with Foreigners:
• Coherent with OECD recommendations (Italy has a over-
compliant approach to these guidelines);
• Worldwide income principle for individuals and
corporations, based on residence condition;
• Source principle for non resident individuals and
corporations;
• High withholding taxes charged on non residents without
DTC (26% - 30% depending on the case).
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14. A Focus: Individuals
• Resident in Italy for tax purposes if:
1. Registered here;
2. Residence or Domicile (as defined according to
the Italian Civil code) in the Country
• See Tax Court of Appeal of Milan n°1685 decided on April
11th 2017 “Gucci case”.
• Ad hoc provision targeting qualified jurisdictions
(Liechtenstein and Switzerland still included as for
individuals).
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15. A Focus: Corporations
• Companies resident in Italy when they have:
1. Legal Seat;
2. Place of (Effective) Management;
3. Main Business Facilities;
• Special anti avoidance (Claw-back) provisions
applicable to foreign entities with qualified business
in Italy (see Tax Court of Ferrara n° 181 decided on
May 8th 2017 on the Vaduz-based Renarreda
company).
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16. Italian Tax Office
Approach
• Italian audits, assessments and controls are under the
supervision of the Tax Agency and the Guard of Finance;
• Over-aggressive approach in Tax audits;
• Limited accountability towards the Ministry of Finance
(no actual control of stakeholders);
• Legal instruments empowering the attitude:
• Generous GAAR (article 10-bis Statute of Taxpayer’s rights);
• Intrusive Criminal tax law regulations, attributing Criminal
relevance to many miscarriages by the taxpayers.
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17. Tax Judiciary
• Tax Justice delivered by special judges (part-time);
• Pros: timely decisions, the fastest jurisdiction in Italy
(average time, first degree: 1 Year; average time, appeal
degree: 1,5 – 2 years).
• Cons: high uncertainty of the litigation outcome;
• Supreme Court stuck with tax litigations: around
60% of the workload in Rome is tax-related;
• Time sensitiveness of the strategy.
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18. Approaching the New
Attraction System
• Selective targets of the Italian legislation:
1. High Net Worth Individuals (emulation of the former
UK system);
2. Retired individuals (as to reverse the flow of the
outbound retired individuals, mostly to Portugal);
3. High value-added researchers and scientists.
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19. The System in
a Bird’s Eye View
• Qualified taxation for individuals transferring
residence (for tax purposes) in Italy consisting of:
1. Yearly lump-sum payment of € 100.000 on any kind of
foreign income / gain / etc.
2. Exclusion from inheritance and donations tax on
foreign assets;
3. The exemption is not applicable to domestic-sourced
income or for any assets in Italy;
4. Duration of the system, (no more than) 15 years.
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20. Sources of Law (and other
Relevant Provisions)
1. Article 24 bis, Income Tax Act;
2. Preliminary guidelines (Tax Agency) n. 47060,
March 8th 2017;
3. Circular Letter (Tax Agency) n. 17/E, May 23rd
2017.
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21. Meeting the Requisites
…
• Focus is on (actual) Non-residents (citizenship is
irrelevant to this purpose) who;
1. Transfer their residence for tax purposes in Italy and …
2. … haven’t got any residence in the Country for the
latest 9 years out of 10.
• Residence is tested according to form and substance
(registration and actual resident / domicile).
21

22. … and Understanding
the Risks
Necessity to double check the «Non Residence»
status before the choice is made. 22

23. Suggested Strategy for
the Tax Advisor
• Familiarize with the “Check-the-Box Approach” by
the Tax Agency as drafted in Circular letter 17/E;
• Consider the possibility for a Ruling;
• Inform the Client that formal registration in Italy is
enough to match the conditions as set forth by the
HNWI regime (Slide 23, Condition 1, above).
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24. Other Relevant
Informations
• Lump-sum payment covers ordinary taxes on foreign
income;
• The Remittance system (such as the UK one) is not
applied here (too much complex and – apparently –
easy to be overtaken);
• It may be extended to family members (ascendants
and descendants) including brothers and sisters (in
law too) for € 25.000 each;
• They can join the system at a later stage too;
• Continued …
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25. Continued …
• Cherry picking approach is also possible on a
Country by Country basis;
• Once a Country is excluded, the credit for the taxes
paid there (as calculated under Italian law) can’t be
compensated with tax liability in the State;
• New opportunities for planning …
25

26. Another Example
3
1
2
26

27. What is foreign income ?
• In theory, Income is foreign according to the
domestic qualification, that is:
1. When assets are abroad (example: real estate
investments);
2. When activity is carried on abroad (example:
professional activity);
3. When source / payer is abroad (example: loan,
example: financial asset issued abroad);
• Note: the reference here is made to the instrument according to
where it is issued and not where it is held.
27

28. A Borderline Case
Trust
New resident 28

29. Other Side Effects of the
Choice
• Decision to move to Italy might affect, inter alia:
1. Exit taxation in the outbound State;
2. Possible CFC application in the individual is a qualified
shareholder of a company;
3. Possible assessment of the Place of effective
management of the Company the individual is a
manager of;
4. …
29

30. Remedies
• General approach: most of the risks are neutralized
by the Law:
1. CFC rules: not applicable if the foreign company is
participated directly by the individual of the case;
2. Place of effective management: considered abroad if
the majority of the managers is resident abroad;
3. Exit taxes abroad: if any, the value of the shares as
assessed abroad by the Tax office is recognized in Italy.
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31. Capital Gains
• Risks of abuses of the Special regime;
• Exemption is granted only after 5 years to qualified
participations sold by the new resident individual;
• Qualified participation if shares grant more than 2% or
20% of the voting rights (listed / not listed companies);
• Qualified participation if shares grant participation to the
capital exceeding 5% or 25% (listed / not listed
companies);
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32. Further Exemptions
• The new regime also cover:
• Gift and inheritance taxes on assets held abroad;
• IVIE and IVAFE: Italian indirect taxes on qualified assets
(immovable and financial instruments) held abroad by
residents individuals;
• Duty to report financial instruments abroad under annual
Italian tax return (RW frame/entry of the annual tax
return).
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33. Inbound Workers
• Target: employees (directors, artists and sportsmen
included) moving to Italy from 2020 onwards;
• Conditions:
1. Not resident before in Italy (not in the previous 2
years);
2. Duration of 2 years or more;
3. Main activity carried on in the Country.
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34. Features of the System
• 70% income exemption (according to the decree
passed on April 30th 2019, n. 34 aka “Growth
Dcree”);
• 90% income exemption (salary, bonuses, etc. …) if
the individual moves to qualified villages of qualified
southern regions of the Country;
• Duration:
• Ordinary: 5 years;
• Extended (purchase of an abode in the country and/or
other minor conditions): 10 years.
34

35. Retired individuals
(Pensioners)
• Relevant individuals (as from tax year 2019):
1. Beneficiaries of a foreign-sourced Pension;
2. … moving to villages in the southern pert of Italy;
3. … moving from states cooperative with Italy for tax
purposes;
4. Not resident in Italy for the previous 5 tax years.
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36. Features of the System
• 7% tax on all foreign sourced income:
• Reduced rate is not limited to pensions and
equivalent treatments;
• Cherry-picking approach is possible (selection of the
foreign states where income comes from);
• No duty to repot foreign assets owned to the Italian
Tax administration.
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37. Points of Conflict
• EU law:
• Fairness and tax competition aspects;
• International Tax Law:
• Entitlement of the Newly resident individual to the tax
treaty network benefits;
• Constitutional law:
• Discrimination, equal treatment, ability to pay.
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38. Thanks for your
Attention
marco.greggi@unife.it
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