Global FS Tax NewsFlash

September 2014

BCM Newsflash - Amendment to application of substitute tax in Italy

The substitute tax on credit facility agreements under Articles 15 and following of Presidential Decree No. 601 issued on September 29, 1973

An amendment enacted in December 2013 in Italy now allows parties to certain credit facility agreements to opt to apply a substitute tax. Prior to the December 2013 amendments, the substitute tax regime was automatically applied in lieu of certain taxes on contracts falling within the scope of the legislation. The substitute tax was intended to provide relief, but instead often resulted in a heavy tax burden for borrowers, who usually bear the burden of the tax, especially when the replaced taxes were lower.

This was in contrast with the purposes for which the substitute tax was introduced. Therefore, the recent amendments to the law are aimed at freeing borrowers from additional burdens, as they can opt to pay the original taxes instead of the substitute taxes, based on which results in a more beneficial tax treatment.