Italy adopts legislative decree implementing EU anti-tax avoidance package

Overview

The Italian Legislative Decree n. 142/2018 (the Italian ATAD Decree) enacting the EU anti-tax avoidance package was published in the Italian official gazette on December 28 2018.

The Italian ATAD Decree transposes EU Directive 2016/1164 (ATAD 1) – as amended by EU Directive 2017/952 (ATAD 2) – into the Italian legal system by providing rules against the erosion of taxable bases in the internal market and the shifting of profits out of the Italian market.

The Italian ATAD Decree contains the ATAD 1 and ATAD 2 provisions covering (i) interest limitation rules; (ii) exit taxation; (iii) entry taxation; (iv) controlled foreign company (CFC) rules; (v) a new set of criteria to identify ’tax haven’; and (vi) EU and extra-EU anti-hybrid rules. According to the Italian ATAD Decree, most of the provisions apply starting in fiscal year 2019.

The Italian Legislator did not transpose the general anti-abuse rule under Article 6 of ATAD 1 since the current Italian general anti-abuse provision, enacted in 2015 (art. 10-bis of Law no. 212/2000), is considered to be mostly in line with the EU rule.

Most of the Italian ATAD Decree provisions triggered amendments in the Italian tax code (ITC).

The takeaway

The main Italian ATAD Decree amendments to Italian tax rules relate to:

• changes in the interest limitation rule
• updates of the Exit and Entry tax provision
• changes in controlled foreign entities rules (CFC regime)
• updates on the definition of low-tax regime jurisdictions
• introduction of anti-hybrid rules in the Italian tax system.

Multinationals should consider the potential impact of the Italian ATAD Decree, analyze their position for Italian tax purposes, and consider the relevant anti-avoidance rules that have been introduced beginning in fiscal year 2019.