The Asset Management Review: Italy

Overview of recent activity

Supportive global economic conditions, expansionary monetary policy, structural reforms and prudent fiscal policy have bolstered Italy's economic recovery for the past years. Exports, private consumption and investments were the main drivers of the recovery, with the added support of rising international demand.

The Italian financial markets picked up in 2019, including because of the European Central Bank's (ECB's) commitment to maintaining highly expansionary monetary conditions for a longer time. But the Italian economy, as all others, has been hit by covid-19, with the economic outlook for the rest of this year and coming years being curbed, especially compared to projections from 2019.

To support the liquidity of small and medium-sized enterprises (SMEs) and households, and to facilitate firms' access to bank credit, the Italian government made it possible to take advantage of legally binding moratoriums on existing loans and made available public guarantees for new loans issued by banks and financial intermediaries.

As to financial operators and institutional investors, the consequences of the crisis have been modest. The sharp drop in financial asset prices and the rise in volatility have led to a reduction in the solvency ratio of insurance companies, but it remains well above the regulatory minimum. The numerous requests for redemption in the investment fund segment have been met in an orderly fashion, partially due to the limits on investment in illiquid assets provided for under Italian regulations.

From a regulatory standpoint, the European regulator's intervention in recent years in the asset management field (e.g., through the Alternative Investment Fund Manager Directive (AIFMD)) has played a major role in increasing investment opportunities for investment funds (e.g., by allowing alternative investment funds (AIFs) to acquire loans from non-customer originators against their own capital), while at the same time making the sector more trustworthy for less sophisticated investors.

The positive trends seen in the Italian asset management industry in 2018 continued in 2019; by the end of the year, total assets under management (AUM) reached a value of more than €2,307 billion, an approx. 14 per cent increase on the previous year. But also, this landscape has already changed as a result of the pandemic: by the end of April 2020, the AUM dropped by €129 billion, compared to December 2019.

Italy's venture capital sector remained stable in 2019, and venture capital-financed start-ups were seen to grow faster and be more innovative than comparable companies. A reduction was seen in long-term individual saving plans (PIRs), which were introduced in 2017 to boost investment in financial instruments (shares, bonds, etc.) issued by Italian SMEs (see Section IV). However, this trend is expected to reverse due to the new alternative PIRs, for which mostly more affluent private clients will be eligible and which aim to ease investment diversification and encourage SME growth (see Section IV).

With a view to facilitating the inflow of capital for SMEs and start-ups, in April 2019 a new form of investment vehicle was introduced, known as simple investment companies (SISs). SISs are a type of AIF incorporated as joint-stock companies, with fixed capital that benefit from several exemptions under the asset management regulatory framework.

For the same purposes, in June 2020 the Italian Ministry of Economy and Finance (MEF) published for consultation a proposal to amend Ministerial Decree No. 30/2015 to expand the cluster of retail investors eligible to subscribe and purchase reserved AIF units (see Section IV).

Lastly, technology-enabled innovation in financial services is fast developing in Italy and offers numerous advantages. Indeed, fintech has the potential to: (1) increase efficiency and reduce costs; (2) improve access to, and provision of, financial services; (3) enhance the customer experience; and (4) create markets for new and innovative financial services and products.

As technology continues to break down the barriers to entry in financial services markets, asset managers, banks and other regulated entities are reacting to this changing environment and offering more online services. This involves them shifting the distribution of their standard services to online platforms via multichannel networks, thereby reducing the number of physical branches, which allows the remaining branches to specialise in high value-added services (e.g., wealth management, private banking and advisory).

General introduction to the regulatory framework

The Italian regulatory framework is characterised by rigorous and incisive rules, and supervisors with extensive powers.2

The principles governing asset management are contained in the Italian Financial Act,3 and were primarily implemented – after the adoption of the AIFMD and the Undertakings for Collective Investment in Transferable Securities Directive (UCITS V)4 rules – by Ministerial Decree No. 30/2015, which sets out the general criteria applicable to Italian UCIs; the Bank of Italy's regulation of 19 January 20155 on the collective asset management rules and the relevant explanatory notes; the Bank of Italy's regulation of 5 December 2019 on internal organisation rules for intermediaries and asset management companies;6 and regulations issued by Consob.7

The asset management industry is represented and supported by Assogestioni, a private organisation,8 which has developed several codes of practice and guidelines. Other organisations such as the Italian Association of Private Equity (AIFI) are active in different fields of the industry.

The rules governing the marketing in Italy of AIF units or shares fully reflect the regime set out in the AIFMD (including the marketing of non-EU AIFs or AIFs by non-EU AIFMs)9 and can be summarised as follows:

  1. EU AIFs to professional investors: the EU AIFM is required to (1) obtain prior authorisation in an EU jurisdiction that has already implemented the AIFMD; and (2) subsequently notify Consob through the home country regulator, otherwise the marketing in Italy of the relevant EU AIF units is prevented; and
  2. EU AIFs to retail investors: the EU AIFM is required to, in addition to obtaining the authorisation under (1) above, request Consob's authorisation.10

As to the marketing in Italy of foreign collective investment schemes under the UCITS framework, the home country regulator must notify Consob before any marketing begins.

The Italian investment management industry was also affected by the implementation of MiFID II, which came into force in January 2018.

Although asset management companies do not fall under the scope of the product governance provisions under MiFID II, various initiatives have been adopted to facilitate the exchange of information between manufacturers (i.e., management companies) and distributors concerning, for example, the target markets and distribution strategies – because the distribution channel is required to comply with this regulation. Consob considers this a best practice that ultimately benefits retail investors.

Conversely, the marketing of UCIs by asset management companies is subject to MiFID II conduct rules and to product intervention measures (such as the prohibition, restriction or suspension of marketing) when investor protection or market stability – or both – are threatened.11 Similarly, asset management companies authorised to provide investment advisory, portfolio management or reception and transmission of orders are subject to MiFID II conduct rules for the provision of investment services.

Moreover, asset management companies that intend to market UCIs to retail investors are now required to publish a key information document on their website to enable retail investors to understand and compare the key features and risks of an investment.12

Common asset management structures

Under Italian law, UCIs can be set up as:

  1. funds, notably independent pools of assets divided into units, which are:
    • set up as open-ended or closed-ended investment schemes and managed by a management company incorporated as a joint-stock company (SGR) in accordance with a defined investment policy;
    • set up without legal personality, as the SGR is the sole entity empowered to undertake obligations and exercise rights on behalf of the funds;
    • segregated completely from the SGR's own assets, the other assets managed by the same SGR and each investor's assets; and
    • divided into units assigned to a plurality of investors;
  2. SICAVs that are open-ended collective investment schemes set up as joint-stock companies with variable capital; or
  3. SICAFs that are newly introduced closed-ended collective investment schemes set up as joint-stock companies with fixed capital.

Option (a) is by far the preferred choice of Italian market operators.13 Specifically:

  1. open-ended funds (at the end of 2019, approximately 1,194 Italian funds and 3,790 foreign funds14): participants may exercise the right to redeem units at any time, in accordance with the procedures established by the fund's regulation;
  2. closed-ended funds (at the end of 2019, approximately 49 funds15): participants may exercise the right to redeem units only at predetermined maturities, under specific circumstances and for limited amounts;
  3. hedge funds: see Section VI.iv; and
  4. funds reserved to qualified investors, which now qualify as reserved AIFs, can be either open-ended or closed-ended, and their units can be placed by, or reimbursed or sold to, qualified investors only.16

As mentioned in Section I, SISs were introduced in April 2019 as a new form of investment vehicle to facilitate the raising of capital for SMEs and start-ups. SISs are recognised for all intents and purposes as UCIs set up as SICAFs and benefit from several exemptions from the asset management regulatory framework if they comply with the following requirements (among others): (1) their net assets do not exceed €25 million; and (2) the target companies are non-listed SMEs that are experimenting with, creating or starting up their business.17

In April 2020, the Bank of Italy and Consob published for consultation supervisory guidelines on SIS compliance with the regulatory framework under the Italian Financial Act regarding internal governance and control system, and conflicts of interest (among other things).18

Main sources of investment

The asset management industry witnessed a positive trend in the first quarter of 2020, similar to that seen in the beginning of the previous year: the total AUM reached a new historical record with a value of over €2.306 billion split between individual portfolio management mandates (52.2 per cent, which is a slight increase on the last few years) and funds (44.8 per cent open-ended and 3 per cent closed-ended, with the latter showing a slight increase on the first quarter of 2019),19 a nearly 14 per cent increase on the previous year.20 Nonetheless, in 2019 the net cash inflow of the asset management industry plummeted – mainly due to high volatility of the financial markets in the first half of the year, which led Italian households to invest in traditional products such as bank deposits.21 Indeed, growth in disposable income slowed, and the value of portfolio assets decreased considerably.

In 2019, sight deposits and purchases of insurance policies with guaranteed minimum returns remained high, while subscriptions of open-ended investment fund units dropped sharply, mainly due to low redemption rates in the retail segment. Nonetheless, asset management instruments accounted for a much larger share of household portfolios compared to previously; they allow investors to better diversify their risks, including by taking advantage of a wider range of investments on international markets.22

In 2019, the number of investments in PIR-compliant funds fell due to investment limits introduced by Law No. 145 of 2018 (the 2019 Budget Law).23 Despite this, redemption from PIR-compliant funds remained low due to the minimum five years required to benefit from tax exemption. However, this trend is expected to reverse because Law No. 157 of 2019 (the Fiscal Law linked to the 2020 Budget Law) removed the above-mentioned investment limits.24

Key trends

The recent trends in the Italian asset management sector can be summarised as follows:

  1. an increase in private equity and venture capital deals (3 per cent up on 2018);25
  2. progressive growth in the green and social bonds market (i.e., financial instruments whose proceeds are allocated to finance projects with a positive environmental or social impact);26
  3. slight increase in profitability of asset managers operating in the real estate sector, following an increase in trading volumes;27
  4. increased number of AUM;28 and
  5. increase in AUM (up by 8.01 per cent in March 2020 compared to March 2019) of exchange-traded products (the vast majority of which are UCITS-compliant exchange-traded funds (ETFs)).29

To support recovery, specific measures have been adopted in recent years, including:

  1. the possibility granted in 2013 to the SMEs Guarantee Fund30 to provide coverage also to SGRs, in addition to banks and other financial intermediaries;31
  2. the opportunity given in 201432 for Italian AIFs and, in 2016, for EU AIFs, to carry out direct lending activities;33
  3. the introduction of PIRs, launched to boost investment in financial instruments (shares, bonds, etc.) issued by Italian small and medium-sized enterprises (SMEs) thanks to the tax exemption they are granted;34
  4. the levelling of the playing field between rules governing alternative funds and UCITS managers (as a result of the convergence of their respective sets of regulations) owing to the implementation of the AIFMD (see Section II);
  5. the review of the crowdfunding framework so as to expand the scope of eligible investors and reduce certain regulatory entry hurdles;35 and
  6. the increase in investment in ETFs.36

Furthermore, the increasing reach of more complex and innovative technologies is rapidly transforming the structure of the financial industry. Indeed, fintech is radically innovating the way financial services and asset management are designed and offered. It represents an evolving phenomenon that involves several market segments (e.g., wealth management, investments services, crowdfunding, and peer-to-peer lending), and heterogeneous tools and techniques (e.g., robo-advice and artificial intelligence).

The management and analysis of big data, the use of artificial intelligence and machine learning, and the potential offered by distributed ledger technologies are changing the services provided; they are also opening up the sector to new competitors – including, but not only, the big techs – that are able to swiftly exploit the advantages of operating and trading in the digital economy.

As to financial results, asset managers closed the last financial year with increased profits (up 36 per cent),37 mainly owing to the recovery of the main financial markets. Investments in closed-ended real estate funds positively affected the profitability of real estate managers (profits almost doubled).38

Sectoral regulation

i Insurance

Following the implementation of the Solvency II framework, and in light of the appeal of asset management products for Italian investors, the measures adopted by the Italian regulator in terms of eligible investments were particularly favourable to the insurance industry.

In this respect, IVASS allowed Italian insurers to decide how to cover their technical reserves (i.e., which asset classes to choose for investing their own funds) provided that certain conditions – namely in terms of governance – are met in accordance with the freedom to invest under Article 133 of Solvency II.39 Importantly, this framework confirmed the possibility for insurance companies to provide, under certain conditions, direct lending.40

IVASS has also introduced rules for determining the average rate of return of separately managed accounts, allowing insurers to temporarily suspend the accounting of gains and losses deriving from the trading of derivatives, and to hold the revenues gained during favourable economic cycles for distribution to policyholders during less favourable accounting periods.41

At the end of 2019, insurance companies held technical reserves of €801.3 billion (€749 billion in 2018), and technical reserves related to life branches amounted to €742.5 billion (€690 billion in 2018) while technical reserves related to non-life branches amounted to €58.8 billion (with no changes compared to 2018).42 Assets covering the technical reserves (excluding the technical provisions concerning linked policies and pension funds) are mainly invested in government bonds (58.5 per cent) and corporate bonds (24 per cent), both in line with the previous year, whereas UCIs, real estate and shares remain less significant.43

On a separate note, in 2019 the negative trend in unit-linked policy volumes continued.44

In addition, IVASS shone a spotlight on the phenomenon of 'dormant' life policies,45 requiring insurers to take actions to improve the processes for verifying the deaths of insured people and identifying beneficiaries.46 The payment of the insured capital related to dormant life policies releases resources that could be directed to investments in funds, especially considering the trend of low interest rates that has made traditional banking products less appealing.

ii Pensions

Over the past 30 years, the Italian pension system has undergone significant reforms47 aimed at progressively controlling public expenditure and setting up private sources of retirement income in addition to the mandatory state pension system.

An initial set of rules comprehensively regulating supplementary pension schemes was introduced in 199348 and radically reformed in 2005 (Legislative Decree No. 252). The reform's cornerstones were voluntary, and defined contributions, individual capitalisation mechanisms and the transferability of positions from one pension scheme to another. In December 2018, the Italian government passed Legislative Decree No. 147 implementing Directive (EU) 2016/2341 on the activities and supervision of pension funds. The decree introduced significant changes to the previous legislation, mainly regarding two issues: (1) pension fund governance; and (2) information to potential members and beneficiaries. COVIP is thus implementing a specific set of directives to allow pension funds to promptly comply with the new regulatory framework.49

Currently, 380 private pension funds are in place in Italy (in 2018 private pension funds were 398).50 The structures of those pension funds take four different forms:

  1. contractual pension funds;
  2. open-ended pension funds;
  3. individual insurance pension plans (PIPs); and
  4. 'pre-existing' pension funds.

The Italian private pension market is concentrated, as the 47 largest private pension funds (with more than €1 billion of AUM) hold 60 per cent of the total resources.51

The sums contributed to private pension schemes must be managed according to the principles of prudence, transparency, investment diversification, risk fragmentation and cost containment (see Ministerial Decree No. 166/2014).52 Eligible assets include UCITS and AIFs; certain derivative contracts; and certain non-listed and non-rated bonds issued by SMEs, and securities backed by the same assets and issued as part of securitisation transactions.

Although the past three years saw the prolonged expansionary monetary policy – characterised by low interest rates – trigger a portfolio diversification resulting in a decrease in AUM invested in sovereign bonds, 2019 witnessed a slight decrease in this type of investment (from 41.7 per cent in 2018 to 40.3 per cent in 2019).

Italian workers are becoming increasingly aware of the advantages of private pensions, whose market is steadily growing (in terms of participants and AUM) also because of the widespread distribution network used and the reduced costs to be borne by investment fund managers.53 Despite this growth, the participation rate in private pension funds is still modest (approximately 31.4 per cent of the workforce), which represents a market opportunity for pension funds that could target the Italian market to expand their business. However, the Italian regulator has some concerns in light of investors' low levels of expertise, which could damage them if aggressive sales strategies are adopted by pension funds.54

To encourage participation in private pension schemes, COVIP has taken specific measures in the past few years, including a ban on the exclusive or automatic reliance of pension schemes on credit rating agency ratings;55 a simplification of the bureaucratic burdens related to certain corporate actions and extraordinary transactions; and incentives to mergers so as to reach sizes that ensure efficiency and economies of scale.56

iii Real property

Real estate UCIs are set up as closed-ended funds to support their liquidity needs and, following the implementation of the AIFMD, the units of funds with a minimum subscription below €25,000 need no longer be listed.57 Italian real estate UCIs invest no less than 66 per cent of their assets (or 51 per cent, in certain circumstances) in real property, real estate rights, stakes in real estate companies and units of other real estate UCIs. To safeguard investors' interests and an SGR's independence, the assets of real estate UCIs are valued by external and independent appraisers (however, this valuation is not binding on the fund managers).

The development of real estate funds was initially hindered by a set of regulatory and operational constraints, which have since been gradually removed. The history of Italian real estate funds can therefore be divided into two different phases: 2000 to 2004, when the real estate fund market was dominated by retail products; and from 2005 to the present day, during which time the assets of funds reserved to qualified investors increased. As to the recent trend, in 2019 investments in real estate funds were mostly by international investors and partially by Italian insurance companies and social security entities.58

Broadly speaking, the real estate market is slowly recovering from the negative tendency of the past few years, and in 2019 the asset management sector benefited from this market improvement. As at 31 December 2019, total assets of real estate UCIs amounted to €58 billion, up on the previous year.59

Most investments by real estate funds in Italy in 2019 concerned assets in Northern Italy, specifically in Milan, that are becoming more and more appealing to foreign investors.60 This trend is likely to continue, and may be further amplified if the uncertainties regarding the future value of real estate assets in London persist. In fact, the UK real estate market may well experience a negative trend following the country's exit from the European Union.

iv Hedge funds

UCIs can also be set up as hedge funds, thus enabling them to invest in a wider range of eligible assets than UCITS, and derogating from the Bank of Italy's general rules for risk containment and fragmentation. Following the implementation of the AIFMD, Italian hedge funds can now be classified as a subcategory of reserved AIFs (closed-ended or open-ended). Reserved AIFs may carry out a wide spectrum of investment strategies that are not limited to the typical policies of hedge funds.

In light of the higher risks to which hedge fund investors might be exposed, the Italian regulator introduced a set of limits affecting the distribution of and investment in these funds. For example, a fund's regulation must expressly set out the maximum level of leverage and flag the risks of the investment. Moreover, the initial minimum subscription amount for non-professional investors61 is €500,000, and hedge fund units cannot be exclusively distributed to retail investors through the individual portfolio management service.62 In June 2020, the MEF opened a public consultation to amend the limits for retail investors in order to ease investments in private equity and venture capital (see Section III).

Owing to the above structural constraints, hedge funds have developed more slowly in the Italian market compared to other countries and are still mainly targeted to institutional investors.

Since 2007, amendments to the applicable framework have been introduced to support the hedge fund sector. The provisions requiring the establishment of a special purpose SGR to set up and manage hedge funds were repealed, thus opening up the market to any legal entity licensed as an SGR, and boosting restructuring and merger transactions.

Despite these measures, the Italian hedge fund market is still in a comparatively weak position with limited fund offers.

However, the revision of the regulatory framework still needs to be accompanied by a change in the cultural approach to alternative investments. Traditionally, Italian investors tend to be risk-averse, and although this helped them protect their assets during the financial crisis, it has also hindered Italy's ability to compete in innovative market segments (such as that of hedge funds).

v Private equity

The history of the Italian private equity market can be divided into the following main stages:

  1. 1996 to 2000: characterised by a favourable economic backdrop and a strong increase in investments, which were traditionally used to perform leveraged buyouts or expansion transactions to support the growth of already existing companies;
  2. 2001 to 2008: characterised by a complex macroeconomic backdrop that caused a reduction of internal rates of returns despite increased investment volumes;
  3. 2009 to 2012: characterised by the credit crunch, and a drop-in performance and investment volumes; and
  4. 2013 to 2019: characterised by a partial recovery, an increase in operators and in investments (with a decrease in investments amount in 2019 compared to 2018) with growing trends in the 'buyout' and 'early stage' segments, and with independent fundraising remaining the main challenge for operators.63

Notwithstanding the rapid development that preceded the financial crisis, the Italian market is significantly undersized compared to France, Germany, Spain and the UK: domestic funds are suffering from the high market volatility and the limited willingness of institutional investors to invest in private equity funds. Nonetheless, 155 private players were active in 2019 in fundraising/investment and disinvestment deals (4 per cent up on the previous year).64

According to the AIFI, in 2019 investments in the Italian private equity and venture capital markets decreased to €7.223 billion,65 with 10 large and two mega deals (i.e., deals exceeding €150 million and €300 million, respectively). The overall amount of private equity investments in 2019 slightly grew by 3 per cent compared to 2018, and were distributed over 370 deals (mainly concentrated in buyout transactions, infrastructure, medical, industrial services, replacement, early stage and expansion segments involving SMEs).

Additionally, compared to 2018 divestments in the private equity sector decreased in terms of both the amount (-20.5 per cent) and number of exits (-2.2 per cent). In particular, sales to other private equity investors represented the main exit channel in terms of amount (41 per cent of the total number of divestments).66 In fact, taking into account the international players based in Italy, total capital inflows decreased to €3.431 billion. As to divestments, they amounted to €2.216 billion (a 21 per cent decrease on 2018).67

Fundraising by private players – which remains the most critical part of asset management activity – continued slowing down in 2019 (a 56 per cent decrease on 2018), with the total resources collected by domestic operators amounting to €1.591 billion compared to €3.36 billion in the previous year. This decrease was probably influenced by the fact that only 22 private players were active in fundraising in 2019 (compared to 34 in 2018).68

Notably, the low interest rate environment caused buyouts to generally be the preferred stage for investments, and the one into which the largest portion of resources continued to flow (i.e., 73 per cent of the total amount). In addition, early-stage activity in 2019 registered a 17 per cent decrease in amount (from €324 million to €270 million), and a 2 per cent decrease in number (from 172 in 2018 to 168 in 2019).69

Market operators are optimistic about the future economic scenario, and thus have encouraged measures aimed at providing venture capital for Italian start-ups.70

vi Other sectors

See Section III for a summary of the main features of Italian reserved funds.

Tax law

The tax regime currently applied to investment funds, including the tax treatment applied to their investors, was amended a few years ago. The underlying principles of the new tax regime for investment funds are no taxation at the level of the investment vehicle and taxation at the level of the investors at the moment of distribution. Certain significant exceptions may apply to investors in real estate investment funds (REIFs).

i Real estate investment funds

The reform of the tax treatment of Italian REIFs was achieved through Law Decree No. 78/2010 and Decree No. 70/2011. The main changes include a more restricted definition of investment fund, particularly the concepts of plurality of participants and independence of the management company from the investors. As indicated in the government report on Law Decree No. 78/2010, the changes were mainly aimed at specifying the economic function of REIFs and discouraging REIFs from being set up merely to benefit from the favourable tax regime. In particular, the report emphasised that the aim of the amendments was to limit the application of the REIF tax regime to widely held funds and funds that pursue public interest objectives.

The applicable REIF tax regime depends on the status of the investor (i.e., institutional or non-institutional) and the type of REIF (i.e., institutional or non-institutional). A REIF is not subject to corporate income tax (IRES) and regional tax on business activities, and therefore benefits from a favourable tax regime in connection with its investment activities. In general terms, any income, including capital gains on the sale of immovable property or equity interests in real estate companies, as well as income from property leasing (i.e., rental income), is not subject to IRES or regional tax on business activities in the hands of the REIF. Further, income from certain ancillary financial investments is not subject to withholding tax at source.

Under Italian law, the REIF tax regime applies if a REIF falls within the definition of a mutual fund from a legal and regulatory perspective.

Law Decree No. 1/2012 specifically provides that Italian REIFs must be considered as resident in Italy for IRES purposes, and therefore as autonomous persons liable to income tax. This amendment would allow REIFs to access treaty benefits. In this respect, the Italian tax authorities have stated that tax treaties are usually applied on a reciprocal basis.

Institutional REIFs

Institutional REIFs' units are entirely owned by one or more of the institutional investors pursuant to Article 32(3) of Decree No. 78/2010. The Italian tax authorities have pointed out that the beneficial tax regime, as previously described, applies to institutional REIFs irrespective of compliance with the concept of a mutual fund (e.g., autonomous management and plurality) provided by law and regulatory provisions.

Income received by investors in REIFs upon redemption of units or a periodic distribution of proceeds is, in principle, subject to withholding tax at a rate of 26 per cent by the management company or the relevant Italian qualified intermediary, which is levied as an advance payment of the total tax due from investors that receive proceeds in connection with business activities (inter alia, Italian-resident companies, public and private entities or trusts that carry out a business activity, or non-resident companies with a permanent establishment in Italy to which these proceeds are attributable).

The 26 per cent withholding tax is levied as a final payment in all other cases. It is not levied on proceeds paid to Italian UCIs or pension schemes identified by the law.

Distributions of amounts formed with capital contributions are not subject to any income taxation at the level of the investor but reduce the tax basis of the units for a corresponding amount.

Pursuant to Article 5 of Legislative Decree No. 461/1997, the capital gain arising in the hands of an Italian resident individual who does not act in the context of a business activity is subject to a 26 per cent substitute tax.71 If the units are held in the context of a business activity, the relevant capital gain is included in the aggregate taxable income ordinarily subject to personal income tax.

Non-institutional REIFs

Non-institutional REIFs' units are not entirely owned by institutional investors. The tax regime applied to institutional REIFs also applies to non-institutional REIFs that meet the notion of a mutual fund according to regulatory law.

The tax regime applicable to Italian-resident investors in non-institutional REIFs depends on whether the unitholder owns more than 5 per cent of the units and whether the investor falls within the definition of an institutional investor.

Italian-resident investors (other than institutional investors) that own more than 5 per cent of the units of a non-institutional REIF are taxed, on a 'look-through' basis, on the income realised by the REIF.

The tax regime applicable to institutional REIFs (and to their institutional investors) also applies to investors that do not own more than 5 per cent of the units (and to institutional investors, irrespective of the units owned) in a non-institutional REIF. Therefore, 26 per cent withholding tax applies as an advance or final payment depending on the status of the investor.

In the event of transfer of units by an individual who holds less than 5 per cent of the fund units, capital gains are subject to the same principles that apply to sales of units of institutional REIFs. In the event of transfer of units by an individual who holds more than 5 per cent of the fund units (that are taxed on a 'look-through' basis), for purposes of determining the relevant capital gain, the tax cost of the transferred units is increased or decreased, respectively, by the income or losses attributed to the investor, and is also decreased, up to the amount of the management results attributed, by the proceeds actually distributed to unitholders. In cases of transfer, such units are treated as a participation in an Italian partnership under Article 32(4) of Law Decree No. 78/2010, and the relevant capital gain, if realised outside the context of a business activity, is included, up to 58.14 per cent of the amount, in the relevant taxable income of the investor according to Article 68(3) of Presidential Decree No. 917/1986. This is similar to the tax treatment applicable to capital gains realised from 1 January 2018 to 31 December 2018 by Italian-resident individuals through the sale or disposal of a 'qualified' shareholding not held in connection with a business activity. However, Article 68(3) of Presidential Decree No. 917/1986 has been repealed by the 2018 Budget Law with respect to capital gains realised from 1 January 2019. If the units are held in the context of a business activity, the relevant capital gain is included in the aggregate taxable income ordinarily subject to personal income tax.

Non-Italian resident investors in institutional REIFs and non-institutional REIFs

The tax regime applicable to non-Italian resident investors in REIFs remains substantially unchanged irrespective of whether the REIF is classified as institutional or non-institutional. Proceeds received as a periodic distribution or redemption of REIF units by non-Italian investors are, in principle, subject to 26 per cent withholding tax that is levied as a final payment of taxes due in Italy. As clarified by the tax authorities in Circular 11/E of 9 March 2011, the 26 per cent withholding tax could be reduced pursuant to a provision on interest payments set forth in a double tax treaty, if any, entered into by Italy and the country of residence of the recipient. However, proceeds received by certain qualified non-Italian resident investors (e.g., pensions funds and UCITs established in a white-listed country)72 are exempt from the 26 per cent withholding tax. Specifically, foreign investors established in a white-listed country qualify for the withholding tax exemption provided that, among other things, they meet the prudential supervision test, meaning that either the UCI itself or its asset management company are subject to regulatory supervision by the local competent authority. To meet this latter requirement, the foreign UCI or its asset manager must obtain an initial authorisation for the investment activity and must be subject to a continuing control over its activity.

Foreign UCIs, to comply with the prudential supervision test, need to provide a written statement issued by the competent foreign authorities confirming compliance with this requirement. However, it may happen that a foreign competent authority is not in a position or available to issue the confirmation.73

Capital gains realised on sales of REIF units are, in principle, taxable in Italy as other income.74 However, non-Italian resident investors may benefit from an exemption in Italy based on domestic provisions. In addition, tax treaty provisions remain applicable if certain conditions are met.

ii Foreign real estate investment funds

Article 13 of Legislative Decree No. 44/2014 modifies the taxation treatment of income derived from quotas held in foreign REIFs so as to align it to the treatment provided for income derived from quotas held in Italian REIFs. These changes were also necessary in light of the fact that the transposition of the AIMFD enables Italian SGRs to set up and manage real estate funds abroad under the EU free provision of service regime.

Therefore, regarding income deriving from quotas held in foreign REIFs received by resident persons, the same taxation treatment provided for participants to Italian REIFs that own quotas greater than 5 per cent of the fund shall apply, including the transparency regime for participants other than 'institutional investors', listed in Article 32(3) of Law Decree No. 78 of 2010.75

For income tax purposes, a foreign REIF must be framed within the ambit of non-resident persons liable for IRES pursuant to Article 73 of the Income Tax Code, and is thus subject to IRES on income that is deemed to be Italian-sourced. In cases where a resident owns a fund stake greater than 5 per cent, taxation on the fund (generally on cadastral income) coupled with quota holders' taxation (as a result of the transparency rule) gives rise to double taxation. In the said scenario it stands to reason that, in the absence of a specific rule, the application of the transparency regime implies application of the exemption regime at the level of the foreign REIF at least on the portion of income from immovable property attributed to the Italian quota holder by operation of the transparency principle.

iii Italian UCIs (other than Italian REIFs)

The profits of UCIs are exempt from income tax and corporation tax. UCIs receive investment income gross of withholding tax and applicable substitute taxes, with certain exceptions. In particular, UCIs remain subject to the withholding at source of interest and other income from bonds, similar securities, and finance bills that are not negotiated in regulated markets or multilateral negotiation systems of the EU and European Economic Area States included in the white list issued by non-listed resident companies, as well as the withholding on income from atypical bonds.

The provisions governing the tax regime for Italian UCIs have been included in the provisions that identify persons liable to IRES by stating that Italian UCIs are considered resident for income tax purposes. However, income realised by UCIs is exempt from IRES provided that a UCI or management company (e.g., the SGR) is subject to prudential supervision.76 In general, income from certain UCI investment activities is not subject to Italian withholding tax or substitutive taxes, and, accordingly, the income is not subject to any taxation in the hands of the UCI. However, certain categories of income realised by UCIs are subject to withholding tax.77 This represents a final payment of taxes due, and no tax credit is available in the hands of the UCI.

Taxation of investors

A withholding tax of 26 per cent applies to investment income deriving from participation in a UCI. The withholding is assessed on:

  1. the total of the profits distributed during the period of participation in the UCI;
  2. the total of the profits included in the difference between the redemption, transfer or liquidation of the shares, and the weighted mean cost of subscription for or acquisition of the same shares; and
  3. a net of 51.92 per cent of the proportion of the income that is referable to:
  4. Italian sovereign bonds and securities and equivalents;
  5. bonds issued by foreign states included in the white list; and
  6. bonds issued by regional entities of the foreign states (to guarantee a tax rate of 12.5 per cent for such receipts).

The 26 per cent withholding tax is levied as an advance or a final payment of taxes due, depending on the tax status of the investor. The 26 per cent withholding tax is levied as a final payment of tax payable by Italian individual investors that hold units other than in connection with a business activity.

With regard to proceeds paid to corporate investors or commercial entities that are resident in Italy for tax purposes, the 26 per cent withholding tax is levied as an advance payment of the total tax due. Proceeds are considered taxable business income, and are subject to IRES on a cash basis. The 26 per cent withholding tax is not levied on proceeds paid to Italian REIFs, pension schemes identified by the law or Italian UCIs that invest in other Italian UCIs.

Taxation of non-resident investors

Proceeds collected by non-resident investors upon a redemption or sale of units, or a periodic distribution of proceeds, are in principle subject to the 26 per cent withholding tax, which is levied as a final payment of taxes due in Italy (provided that the non-resident investor does not have a permanent establishment in Italy to which the proceeds are attributed). However, proceeds realised by certain categories of non-resident investors are exempt from the 26 per cent withholding tax. In this respect, a case-by-case analysis should be performed to identify qualified investors.

If the exemption from the withholding tax provided under the relevant domestic provision does not apply, the 26 per cent withholding tax may be reduced under the provisions of an applicable tax treaty.78 In the absence of any guidance issued by the Italian tax authorities in respect of tax treaty characterisation of the proceeds in an Italian UCI, it may be argued that this income must be considered interest for tax treaty purposes. This conclusion may be supported by the similarities existing between Italian REIFs and Italian UCIs under Italian regulatory law.

iv Italian SICAFs

SICAFs are closed-ended collective investment schemes set up as joint-stock companies with fixed capital. Article 9 of Legislative Decree No. 44/2014 extends to SICAFs the tax rules regarding REIFs: should a SICAF invest in real estate assets in accordance with the rules set out by civil law provisions79 or for SICAVs, the SICAF will not be considered a REIF.


Italy has in recent years undertaken important structural reforms that have contributed to an economic recovery.

In 2019, GDP growth took a slightly positive turn, and investment continued to increase although at a slower pace compared to the previous year. But with Italy being one of the first countries in Europe to be hit by covid-19, GDP fell 5 per cent in the first quarter.

Italian banks are likely to handle the covid-19 crisis better than the 2008–2013 double recession, thanks to their stronger capital position. In the first quarter of this year, the banking system's capital position improved further; no liquidity tensions were recorded, and retail deposits continued to grow. Investment funds have proven to be resilient to adverse shocks by virtue of the safety that investors felt towards professional asset managers. Funds have coped well in the face of the uncertainties, whereas similar entities in other countries have struggled to refund quota buybacks, and some even suspended refunds.

Markets and non-bank intermediaries are playing an increasingly important role in allocating resources at both a European and global level. This trend could bring benefits to countries such as Italy, where banks traditionally sit at the centre of financial intermediation. A diversified financial system supports economic growth and mitigates the effects of adverse shocks on production. Deep and liquid capital markets are needed to encourage investment, especially in innovative and long-term projects; specialised operators that facilitate the supply of equity and assist firms in the various stages of their development are also required.

The recent covid-19 crisis has also highlighted the advantages of technological solutions in financial intermediation. The public health emergency and the containment measures have made the advantages of digital solutions even more tangible. This will inevitably lead to an acceleration of investment in new technologies, which with the achievement of appropriate economies of scale can be made at a lower cost and to greater advantage. These savings, in turn, will make it easier to raise the resources necessary to support investment, including through access to the financial markets.

In terms of future challenges, the asset management industry will have to face, in addition to the possible economic impacts of the covid-19 crisis, the sudden development of fintech solutions and the impact of integrating sustainability risks – and, where relevant, other sustainability factors – into organisational requirements, operating conditions, risk management and target market assessment.

The low level of financial expertise among Italian investors still remains an issue, but Italian authorities – continuing the trend of the previous years – are supporting various initiatives and launching their own.

Furthermore, while certain gaps in the regulatory landscape – including as concerns the fintech phenomenon – pose a risk to macroeconomic stability and development, they also represent an opportunity for market players in the asset management industry. It is thus becoming ever more crucial to have extensive knowledge of the increasingly sophisticated and complex European financial regulations.



1 Giuseppe Rumi and Riccardo Ubaldini are partners and Michele Dimonte, Cristiana Ferrari and Giulio Vece are associates at BonelliErede.

2 The main supervisors involved are: (1) the Bank of Italy: it seeks to ensure the sound and prudent management of banks and intermediaries (including Italian asset management companies and joint-stock companies); (2) the National Commission for Companies and the Stock Exchange (Consob): it supervises, among other things, the provision of investment services, and ensures transparency and correctness of conduct towards investors; (3) the Institution for the Supervision of Insurance (IVASS): the insurance regulator and supervisory authority since 1 January 2013; and (4) the Pension Funds Supervisory Commission (COVIP): the supervisory authority for the private pension funds sector.

3 Legislative Decree No. 58/1998.

4 The key principles and general rules of the UCITS V (EU Directive 2014/91) were enacted in Italy in June 2016 (Legislative Decree No. 71/2016) when the Italian Financial Act was amended. The main changes concerned cooperation between ESMA and the competent national authorities, activities that can be carried out by a custodian, remuneration policies and sanctions for infringing the relevant legal provisions.

5 The Bank of Italy's regulation of 19 January 2015 was last updated on 23 December 2016 to comply with the UCITS V Directive. One amendment concerns under-threshold Italian management companies the prudential regulation of which has been simplified to ensure Italy is more aligned with other EU Member States.

6 This replaced Consob's regulation of 29 October 2007 (jointly issued with the Bank of Italy).

7 See, among others: (1) Resolution No. 11971/1999, which governs a fund's key information document and the offering to the general public, etc.; (2) Resolution No. 20307/2018, which sets out, among other things, the rules of conduct and the rules on internal procedures, conflicts of interest, complaint management and record keeping applicable to collective asset management and investment services; (3) Resolution No. 19094/2015 and Resolution 20197/2017, which supplement and partially amend the resolutions under (1) and (2) above; and (4) Resolution No. 17297/2010, regarding UCIs' and asset management companies' reporting duties.

8 Italian Investment Management Association.

9 In this respect, the relevant passport rules will enter into force when the European Commission issues the measures under Article 67(6) of the AIFMD.

10 The Italian legislature and regulatory authorities opted for a gold-plating provision in this regard, pursuant to Article 43(2) of the AIFMD.

11 The Bank of Italy and Consob, within their respective competences, may adopt such measures when, among other things, the marketing of UCIs gives rise to significant investor protection concerns, or poses a threat to the orderly functioning and integrity of financial markets or to the stability of whole or part of the financial system (see Article 7 bis of the Italian Financial Act and Articles 39–43 of MiFIR).

12 See Regulation (EU) No. 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs).

13 Since 2012, no SICAVs have been enrolled in the relevant register under Article 35 ter of the Italian Financial Act.

As to the diffusion of the SICAF option, given the particularly broad definition of AIF, as implemented in Italy, a number of Italian investment vehicles traditionally falling outside the scope of the rules concerning collective asset management have been reclassified as AIFs, with the consequence of their falling under the Bank of Italy's supervision.

Provided that certain conditions are met, the Bank of Italy has clarified that the following investment entities cannot be considered SICAFs, and, therefore, are exempt from the asset management regulations: listed special purpose acquisition companies, Italian listed real estate investment companies (SIIQs) and financial joint ventures that do not raise capital through equity issuance.

Remarkably, the Bank of Italy pointed out that the actual supervisory classification of the entities above is to be assessed on case-by-case basis (see the Bank of Italy's Final Report on the Public Consultation on the Amendments to the Collective Investment Management Regulation, 21 January 2015).

Furthermore, Article 20, Paragraph 119 ter, of Law Decree No. 133 of 12 September 2014 expressly clarifies that SIIQs cannot be classified as UCIs.

As at the end of 2019, 32 SICAFs had been set up and enrolled with the Bank of Italy's register under Article 35 ter of the Italian Financial Act.

14 See Cubo, Italian Fund Hub Database.

15 See Cubo, Italian Fund Hub Database.

16 Reserved AIFs might also be subscribed by non-professional investors if certain conditions are met (including a minimum subscription amount of €500,000, see Article 14, Paragraph 2, of Ministerial Decree No. 30/2015. However, in June 2020 the MEF published for consultation a proposal to amend Article 14 of Ministerial Decree No. 30/2015 in order to review the requirements (among other things) applicable to non-professional investors who wish to invest in reserved AIFs. The proposed amendments aim to ensure access to reserved AIFs also to: (1) non-professional investors with a minimum, indivisible, subscription amount of at least €100,000 and a concentration limit of 10 per cent of their portfolio, provided that they subscribe as a result of investment advice; and (2) entities authorised to subscribe or purchase reserved AIF units in preforming portfolio management services.

17 See Article 27 of Law Decree No. 34 of 30 April 2019 as amended by Law No. 58/2019, which amended Article 1, Paragraph 1, of the Italian Financial Act.

18 See the Bank of Italy's and Consob's public consultation on SISs published on 30 April 2020.

19 Assogestioni, Quarterly Map of the Italian Asset Management Industry, I, 2020.

20 Assogestioni, Annual Report, 30 March 2020.

21 Bank of Italy Annual Report, 29 May 2020.

22 Bank of Italy Annual Report, 29 May 2020.

23 PIRs can be classified as 'investment containers' – meaning they can be made up of funds, deposits, insurance products, etc. – on condition that: (1) 70 per cent of the portfolio is made up of securities issued by Italian or EU SMEs; and (2) 30 per cent of this share (i.e., 21 per cent of a PIR's total assets) is invested in instruments other than those listed on the FTSE MIB market or other blue-chip indexes. Holders of PIRs are granted a tax exemption if the investments last at least five years and no more than €30,000 is invested annually. Alternative PIRs were introduced by Law Decree No. 34 of 2020 and have the following distinct features: (1) investments can be for up to €150,000 annually, to a total maximum of €1.5 million; and (2) investments in the same issuer (or issuers in the same group) can be for up to 20 per cent of the issuer (10 per cent for traditional PIR).

24 Bank of Italy Annual Report, 29 May 2020.

25 AIFI Yearbook 2020.

26 e.g., see the MEF's Guidelines for the management of public debt for 2020, which set out the MEF's intention to introduce new green bonds in the range of securities offered to the market. See also the 2020 Budget Law, which provides for the setting-up of a fund for environmental sustainability projects.

27 Bank of Italy Annual Report, 29 May 2020.

28 Assogestioni, Annual Report, 30 March 2020.

29 Osservatorio ETFplus, Borsa Italiana, Q1 2020.

30 The SMEs Guarantee Fund is a governmental fund that provides a special guarantee to the benefit of SMEs that enter into banking loans or other credit facilities.

31 See Law No. 9/2014, which converted Law Decree No. 145/2013 (the Destination Italy Decree), which introduced a number of measures to encourage investments in SMEs.

32 See Law Decree No. 91/2014, converted with amendments into Law No. 116/2014.

33 Through the origination of receivables grounded on the AIFs' assets (see Law No. 116/2014, which converted Law Decree No. 91/2014, and Law No. 49/2016, which converted Law Decree No. 18/2016). The Bank of Italy's Regulation of 19 January 2015 was revised and updated to set out the legal framework for loan origination by AIFs.

34 PIR regulation was amended through the 2019 Budget Law (Law No. 145/2018), which introduced an obligation for PIRs to invest a percentage of their portfolio in financial instruments issued by SMEs and venture capital funds.

35 See the Italian Financial Act and Consob Resolution No. 19520 of 24 February 2016, which amended the Regulation on the collection of risk capital via online portals (adopted by Consob Resolution No. 18592 of 26 June 2013). Equity crowdfunding portals may be used solely to offer to the public financial instruments issued by SMEs, innovative start-ups, collective investment schemes, social enterprises and companies that mainly invest in SMEs. The 2019 Budget Law amended the Italian Financial Act by introducing the ability to offer also debt instruments through crowdfunding portals; they must have their own area on the portal and must be addressed only to professional investors and other categories of investors identified by Consob. With Resolution No. 21110 of 10 October 2019, Consob amended the Crowdfunding Regulation to align the secondary regulations with the new provisions in the Italian Financial Act. The Crowdfunding Regulation was further amended in 2020, through Consob Resolution No. 21259 of 6 February 2020, which removed the obligation for portal managers to participate in an investor-compensation scheme but maintained the obligation to take out insurance to cover professional liability. See also Bank of Italy Resolution of 9 November 2016 (which came into force on 1 January 2017).

36 Consob Annual Report to the Ministry of the Economy and Finance, 31 March 2020

37 Bank of Italy Annual Report, 29 May 2020.

38 Bank of Italy Annual Report, 29 May 2020.

39 See IVASS Regulation No. 24/2016, which thoroughly revised the pre-Solvency II regime (contained in ISVAP Regulation No. 36/2011). Previously, insurers had to cover their technical provisions with assets that met specific requirements, including the requirements to: (1) be chosen taking into account the nature and complexity of risks and liabilities undertaken by the insurer to secure the safety, yield, liquidity, diversification and adequate spread of investments; and (2) fall within one of the asset categories set out in the relevant IVASS Regulation, including: the units of harmonised UCIs mainly investing in the bond or share market; the units of closed-ended funds negotiated on a regulated market (up to 5 per cent of the technical provisions); the units of closed-ended real estate funds based in Italy or another EU member state (up to 10 per cent); alternative investments (up to 10 per cent), including shares or units of open-ended non-harmonised UCIs, shares or units of closed-ended funds that are not traded on regulated markets, reserved funds, and hedge funds, provided that specific conditions are met; and direct lending (up to 5 per cent provided all the requirements are met).

40 See Articles 13-16 of IVASS Regulation No. 24/2016.

41 See IVASS Order No. 68/2018 which amended part of ISVAP Regulation No. 38/2011.

42 See IVASS Annual Report, 18 June 2020.

43 See IVASS Annual Report, 18 June 2020.

44 See IVASS Statistical Bulletin No. 4/March 2020, in which IVASS highlights the decrease in insurance premiums for unit and index-linked policies (-18.9 per cent compared to the same period in 2018).

45 'Dormant' life insurance/assurance policies are policies that have gone unclaimed by their beneficiaries and are thus awaiting expiry of the statutory limit to claim them. According to IVASS, 248,176 policies have been 'awakened' since the beginning of the investigation into dormant life assurance policies (2017), for a value of approximately €4.4 billion. See IVASS – Thematic Review on Dormant Life Assurance Policies Results and IVASS Annual Report dated 18 June 2020.

46 See IVASS letter to the market of 29 December 2017. With the IVASS letter to the market of 25 September 2018, IVASS announced that it was extending the investigation into dormant life policies to SEE's insurance companies operating in Italy. With a subsequent letter dated 27 June 2019, IVASS requested insurance companies to update information on 'dormant' life insurance policies.

47 See, among others, Law No. 335/1995, Law No. 449/1997, Law No. 243/2004 and Legislative Decree No. 201/2011.

48 See Legislative Decree No. 124/1993, which also established COVIP, the authority in charge of both the prudential supervision of pension funds and the protection of its beneficiaries' rights.

49 The consultation period has ended but COVIP has yet to publish the provisions.

50 Of these, 33 are contractual pension funds, 41 are open-ended pension funds, 70 are PIPs and 235 are pre-existing pension funds; in addition to FONDINPS, as reported in the COVIP Annual Report for 2019.

51 See COVIP Annual Report for 2019.

52 This decree significantly amended the previous regime – which dated back to 1996 – by introducing specific provisions regarding investment criteria (e.g., diversification, risk and return ratio, and preference for listed financial instruments), limits for particular categories of investment categories or issuers (e.g., the concentration limit of 5 per cent of the portfolio for instruments of the same issuer, and of 10 per cent for instruments of group issuers), and conflict of interest rules. In particular, pension funds are allowed to invest in derivatives and repurchase agreements for hedging purposes only, and provided that counterparties are highly creditworthy. A specific focus is placed on risk assessment, the setting of investment goals and investment policy decision-making processes.

53 The assets of the contractual pension funds, which amount to €56.1 billion, are increasing annually by 11.4 per cent compared to 2018. The assets allocated in open-ended pension funds amount to €22.8 billion, whereas the 'new' PIPs amount to €35.5 billion; in 2019 they increased by 16.4 per cent and 15.5 per cent, respectively, see COVIP Annual Report for 2019.

54 In 2019 approximately 8.3 million workers participated in private pension schemes (a 4 per cent increase compared to 2018), whereas the AUM of private pension schemes amounted to €185.1 billion (a 10.7 per cent increase on 2018); see COVIP Annual Report for 2019.

55 See Legislative Decree No. 66 of 7 May 2015, which aims to reduce excessive reliance on credit rating agency ratings, and requires pension funds to set up adequate internal organisational measures to assess the creditworthiness of the relevant securities they invest in so as to prevent their investment policies from exclusively or mechanically relying on credit rating agency ratings.

56 COVIP takes a very favourable view of concentrations, as a higher concentration rate can improve the efficiency of the system.

57 Ministerial Decree No. 30/2015.

58 Bank of Italy Annual Report, 29 May 2020.

59 Assogestioni, Annual Report, 30 March 2020.

60 Bank of Italy Annual Report, 29 May 2020.

61 Reserved AIFs can be distributed to non-professional investors only if this is specified in the fund regulation. The fund regulation can also specify other categories of investors entitled to invest in the fund.

62 See Ministerial Decree No. 30/2015.

63 See AIFI Yearbook 2020.

64 See AIFI Yearbook 2020.

65 See AIFI Yearbook 2020.

66 See AIFI Yearbook 2020.

67 See AIFI Yearbook 2020.

68 See AIFI Yearbook 2020.

69 See AIFI Yearbook 2020.

70 See 'VentureUp', the start-up platform set up by AIFI in late 2015 in cooperation with certain prominent venture capitalists, advisers and law firms, which the European Commission has included on a list of innovative European platforms.

71 Such capital gain is equal to the difference between the sale price and the tax basis in the hands of the transferring party. The taxpayer may opt for one of three alternative tax regimes, namely the tax return regime, the non-discretionary investment portfolio regime and the discretionary investment portfolio regime; however, pursuant to Article 6 of Legislative Decree No. 461/1997, the non-discretionary investment portfolio regime is the regime applicable to transfer or reimbursement of investment funds units, unless another option is provided by the relevant investor.

72 On 22 August 2016, the Italian published Ministerial Decree of 9 August 2016 (2016 Decree) in the Official Gazette, amending the list of jurisdictions that allow an adequate exchange of information with Italy (the white list). The 2016 Decree broadens the white list to include 51 new countries, and reserves the right to remove countries that are not compliant with the exchange of information obligation.

73 The Italian tax authorities clarified with resolution No. 78/2017 that a Cayman limited partnership in an Italian REIF can prove it is subject to the prudential supervision of the local competent financial authority to the extent its general partner qualifies as a 'relying adviser' of a United States 'investment adviser' under the US Security Exchange Commission regulation (i.e., Investment Adviser Act of 1940). In this scenario, where the relying adviser is controlled by or under common control of an investment adviser and a single form ADV (which is the standard form used by investment advisers to register with both the Securities and Exchange Commission (SEC) and state securities authorities) can be filed by the latter on behalf of itself and the other advisers (i.e., umbrella registration), the form ADV together with the evidence of the registration on the SEC's website are deemed sufficient elements to prove the requisite prudential supervision. This clarification has been recently confirmed by Ruling No. 430/2019.

In 2018, the Italian tax authorities issued further guidelines aimed at clarifying the conditions to benefit from the withholding tax exemption regime on distribution from Italian REIFs to foreign institutional investors. Ruling No. 43/2018 deals with a fund set up under the law of the Cayman Islands which indirectly owns a speculative Italian property fund. In the case at stake the foreign fund (1) complies with the regulations of the United States and (2) consists of a limited partnership organised under the law of the Cayman Islands (which is currently included in the white list). The Italian tax authorities clarified that as the limited partnership (i.e., the foreign fund) is a company controlled by a UCI that manages the reserves of a state, the Italian REIF indirectly involved can be considered an 'institutional fund' thus its proceeds are exempt from withholding tax. This exemption regime applies not only in the case of direct participation in the Italian REIF but also in case of indirect participation via a corporate vehicle (even if such vehicle is established in a state other than that of the institutional investor's residence). This conclusion has been confirmed by Ruling No. 147/2018.

More recently, with Ruling No. 345/2019 the Italian tax authorities confirmed the applicability of the withholding tax exemption regime on distribution of profits from Italian REIFs to a real estate investment trust established in Singapore (which is included in the white list), on the ground that such a trust is substantially similar to an Italian REIF, since: (1) the plurality requirement is met, considered that the units of the trust are subscribed by several investors; (2) the investment policy is predetermined by the deed of establishment of the trust. In particular, the investors are not involved in the management of the trust nor control the investment policy; (3) the trust is managed by a private limited company established in Singapore under the supervision of the competent authority of Singapore pursuant to a specific authorisation issued by this authority. Similarly, the withholding tax exemption regime regarding profits distributed by Italian REIFs has been granted to a fund set up under the law of Luxembourg (white list country) with an indirect participation in an Italian REIF via a series of corporate vehicles (all established in Luxembourg), given that the fund is similar to an Italian REIF and is managed by a company incorporated as a societé à reponsabilité limitée under the law of Luxembourg under the supervision of the competent authority of Luxembourg pursuant to a specific authorisation issued by this authority (see Ruling No. 385/2019).

74 In regard to a sale of units in a REIF, units that exceed the 5 per cent threshold owned by investors other than institutional investors are treated as an interest in a partnership (Article 5 of the Income Tax Code). In the hands of investors that receive proceeds other than in connection with a business activity, such a qualification implies that capital gains form part of taxable income, regardless of the fact that the units are held in Italy and that those units are traded in a listed market. Only 58.14 per cent of the relevant gain is included in the taxable income (Article 68(3) of the Income Tax Code). Moreover, guidance of the tax authorities confirms that tax treaty provisions remain applicable in regard to capital gains realised upon a sale of units when the relevant conditions are satisfied.

Capital gains realised by non-resident investors that do not own more than 5 per cent of the units of the non-institutional REIF (and therefore that are not treated as having an interest in a partnership) are, in principle, subject to taxation in Italy as other income (Articles 23(1)(f) and 67(1)(c-ter) of the Income Tax Code). The same rules applicable for institutional REIFs apply. Indeed, non-Italian resident investors may benefit from an exemption from Italian tax based on domestic provisions in all cases, if the units of the REIF are listed on a regulated market; and in regard to units not listed on a regulated market if the foreign investor is resident for tax purposes in a state included in the white list, or if the foreign investor falls within one specific category that benefits from the exemption regime applicable to proceeds from REIFs.

75 With regard to the application of such a peculiar mode of taxation of income derived from quotas held in REIFs, reference is made to Circular letter No. 2 of 15 February 2012.

76 See footnote 65.

77 The Italian tax authorities confirmed that UCIs that meet the requirements set forth by Article 73 of the Income Tax Code are entities that are considered as 'subject to tax'. Consequently, UCIs benefit from double taxation conventions and are not subject to withholding taxes otherwise applicable under Legislative Decree No. 239/1996, nor to withholding tax on dividends paid by Italian-resident corporations otherwise applicable under Article 24(4) of Presidential Decree No. 600/1973.

78 See Circular letter 11/E of 28 March 2012.

79 See Article 39(1) of the Italian Financial Act.

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