Italy: New withholding tax rates : cutoff method
We hereby provide operational details (“the cutoff method”) for the new tax rates applicable as of
1 July 2014
This is further to our Announcement L14054, dated 30 April 2014.
Background
Legislative Decree 66/2014, approved by the Italian Parliament and published in official Gazette N°95 on 24 April 2014, established a new 26% tax rate on interest paid for certain Italian taxable securities and on dividends paid for ordinary, preferred and savings shares.
Important note:
We remind customers that, until the conversion of the Decree into law, which must be accomplished within 60 days from the date of its publication, the provisions of the Decree may still be subject to changes. In such a case and if the data and operational details presented below will have also to be amended, we will inform customers immediately.
Summary of the new withholding tax rates
Debt Securities:
| Rate (%) before 1/7/2014 | Rate (%) after 30/6/2014 | |
| Italian government bonds | 12.5 | 12.5 |
| Bonds issued by officially recognised organisations (for example, BEI, BIRS etc.) | 12.5 | 12.5 |
| Corporate bonds | 20.0 | 26.0 |
| Foreign government bonds issued by “White List” countries | 12.5 a | 12.5 a |
| Eurobonds subject to Legislative Decree 239/1996 b | 20.0 | 26.0 |
| Atypical Eurobonds subject to Legislative Decree 512/1983 | 20.0 | 26.0 |
a. A 0% rate is applied by Clearstream Banking1 to the bonds subject to Legislative Decree 505/1999.
b. With the exception of bonds issued by foreign organisations (for example, BEI, BIRS etc.).
Equities:
| Rate (%) before 1/7/2014 | Rate (%) after 30/6/2014 | |
| Ordinary shares, preferred shares, shares of co-operative banks, converted shares and stock dividends | 20.0 | 26.0 |
| Savings shares | 20.0 | 26.0 |
| Premium shares with reserve distribution | 0.0 | 0.0 |
| Capital gains realised from 1 July 2014 | 20.0 | 26.0 a |
a. The 12.5% rate will remain applicable for capital gains derived from qualified holdings on which progressive taxation applies and from transactions in Italian government bonds, bonds issued by officially recognised organisations (for example, BEI, BIRS etc.) and foreign government bonds issued by “White List” countries.
Cutoff method
A cutoff on the existing holdings of Italian taxable debt securities impacted by the change of tax rate will be performed on 30 June 2014, ensuring that the tax on outstanding accrued interest and issue discount will be carried over on 1 July 2014 at a tax rate of 26% and not 20%.
For each impacted security on an uncertified account, a fictitious sale will be instructed on the global holding at a rate of 20%, thereby generating a debit on the customer’s cash account, together with a fictitious purchase on the same global holding at a rate of 26%, thereby generating a credit on that cash account.
Both instructions will be processed with a requested settlement date of 30 June 2014 and a value date for the cash instructions of 1 July 2014. Two MT566 confirmation messages will be generated in order to provide all the details of the cash instructions processed on the customer’s cash account.
Note: In order to facilitate the customer’s reconciliation process, a detailed report offering a full overview with all the details of these adjustments will be available free of charge as of 1 July 2014 upon request to our Tax Help Desk.
Our tax support staff will contact customers proactively to offer further guidance and assistance for the accounts for which they would require these reports and clarifications and to answer any questions associated with this tax reform.
Availability of relief
Interest:
Tax exemption based on DL 239/1996 provisions remains unchanged.
Dividends:
The following reduced rates remain unchanged:
- Treaty rates for eligible residents of countries that have a Double Taxation Treaty in force with Italy;
- 11% for EU/EEA pension funds;
- 1.375% for EU/EEA entities subject to corporation tax in their country of residence;
- 0% for supranational organisations recognised by Italian law.
The tax procedures currently in place remain applicable.
Further information
For further information, customers may contact the Clearstream Banking Tax Help Desk on:
| Luxembourg | Frankfurt | Singapore | |
| Email: | tax@clearstream.com | tax@clearstream.com | tax@clearstream.com |
| Telephone: | +352-243-32835 | +49-(0) 69-2 11-1 3821 | +65-6597-1665 |
| Fax: | +352-243-632835 | +49-(0) 69-2 11-61 3821 |
or Clearstream Banking Client Services or their Relationship Officer.
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1. Clearstream Banking refers to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).
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