On 24 December 2019, the conversion law (L.157/2019) of Legislative Decree no. 124/2019 containing urgent provisions on tax matters and for needs that cannot be deferred was published in the Official Journal.
Regarding dividends it is useful to examine the art. 32-quater (Amendments to the tax regime of profits distributed to simple companies).
The new regime (in the absence of a transitional rule) applies to dividends paid starting from the day following the entry into force of the conversion law.
The art. 32-quater, paragraph 1, provides that the dividends paid to the simple company, in any form and under any name, by companies based in Italy (joint-stock companies and limited partnerships, limited liability companies, cooperative companies, of mutual insurance) or by public or private bodies having as their exclusive or main object the exercise of commercial activities and having their headquarters in the territory of the State, are understood to be received by the respective shareholders with consequent application of the corresponding tax regime.
In particular:
A withholding tax of 26% is envisaged on the part of the dividend attributable to shareholders who are natural persons resident in Italy and are not entrepreneurs, as per art. 27, paragraph 1 of Presidential Decree 600/1973.
The part of the dividend attributable to limited partnerships or general partnerships based in Italy is not subject to withholding tax and 41.86% of the dividends received are excluded from the formation of the overall income.
Dividends paid to the simple company are excluded from the formation of the total income for 95% of their amount for the part of the dividend attributable to joint-stock companies or commercial entities based in Italy.
As regards the other categories of shareholders of the simple partnership (for example, non-commercial entities or non-resident subjects), the respective part of the dividend will instead contribute to forming the overall income to the extent of 100%.
The relevant moment for taxation is when the dividend is paid.
It is therefore necessary that the issuing company, at a time prior to the issuing of dividends, becomes aware of the composition of the simple company (legal subjectivity of the shareholders and their share of participation in the profits of the simple company) to identify the correct tax treatment.
As regards trust companies, if the shares or quotas owned by the simple company are administered by an Italian trust company, or in the event that the latter interposes itself between the shareholder of the simple company and the company itself, the transmission of the information relating to the legal subjectivity of the members of the simple partnership must be conveyed through the trust company (it does not act as a substitute or taxable person).
From a first examination of the new legislation, the system outlined by the art. 34-quater of Law 157/2019 is discriminatory towards foreign investments and non-resident shareholders of Italian simple companies.
This will be contested since, according to the jurisprudence of the Court of Justice of the European Union (judgment C685/16), a differentiated tax treatment between dividends distributed by a resident company and dividends distributed by a company established abroad, even in a non-EU State, falls among the measures considered as restrictions on capital movements and, as such, prohibited by Article 63, paragraph 1, TFEU.
Law 157/2019 provides, contrary to the provisions of the TFEU, that in the absence of an express regulatory provision, dividends from foreign sources or intended for shareholders (of simple companies) not resident in Italy, unlike those provided for residents, contribute to the formation of the taxable income of the members for their entire amount.
All that remains is to follow the development of the new legislation in order to modulate the strategies.
Milano, January 10th 2020.
Avv. Giovanni Babino
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