The 26% withholding tax does not apply in relation to securities issued by Italian companies and subscribed to by a Luxembourgish securitization company, even when it does not benefit from any tax exemption in its own country.
Foreign institutional investors are entities that, regardless of their legal status and the tax treatment to which their income is subject in the country of incorporation, have the object of their activity as the execution and management of investments on their own behalf or on behalf of others
The Case at Question
With a recent response to inquiry no. 454 of 2023, the Italian Revenue Agency clarifies the possibility for a foreign company, interested in investing in Italy, to benefit from exemptions on interests, premiums, and other proceeds.
The petitioner is a Luxembourgish securitization company, with fiscal residence in Luxembourg, intending to invest in Italy in bonds or similar securities (“Notes”) issued by Italian companies. The company asks the Italian Revenue Agency to confirm whether it can benefit from the exemption regime provided for the interests, premiums, and other proceeds it will receive from the investment-grade Notes, as it falls under non-resident entities.
As the company is a taxpayer for corporate income taxes in Luxembourg, a country that allows for adequate information exchange with Italy, the petitioner believes it qualifies for the exemption recognized to non-residents for interests, premiums, and other proceeds derived from the future investment-grade Notes.
The Agency’s Response
As clarified by the Agency, the interests, premiums, and other proceeds from bonds and similar securities received by entities resident in states and territories allowing for adequate information exchange are not subject to taxation.
Similarly, the interests, premiums, and other proceeds from bonds and similar securities received by:
- International entities or organizations established based on international agreements made enforceable in Italy
- Foreign institutional investors, even if lacking tax subjectivity, established in countries mentioned in the first paragraph
- Central banks or organizations that also manage the official reserves of the State.
With regard to the definition of “foreign institutional investors,” this name identifies entities that, regardless of their legal status and the tax treatment to which their income is subject in the country of incorporation, have the object of their activity as the execution and management of investments on their own behalf or on behalf of others.
In conclusion, according to the Agency, the 26% withholding tax does not apply in relation to securities issued by Italian companies and subscribed to by a Luxembourgish securitization company, even when it does not benefit from any tax exemption in its own country.
