The Real Estate Investment Structure Taxation Review: Italy

Overview

i Investment vehicles in real estate

Vehicles commonly used in Italy for investment in real estate properties include both non-regulated vehicles and regulated vehicles.

Non-regulated vehicles are usually in corporate form, such as real estate limited liability companies or joint-stock companies. In certain specific circumstances, partnerships, which are transparent for tax purposes, may be used.

Regulated vehicles can be either in contractual form, such as real estate investment funds, or in corporate form, such as real estate investment companies with fixed capital (SICAFs). SICAFs were introduced by Legislative Decree No. 44 of 4 March 2014, which implemented in Italy the EU Alternative Investment Fund Managers Directive (AIFMD).2

As regards the listed real estate market, Italian listed real estate investment companies (SIIQs) were introduced by Law No. 296 of 27 December 2006 and the related civil law and tax regime was subsequently amended in 2014 to take into consideration similar vehicles in other European countries (i.e., EU real estate investment trust (REIT) regimes).

Recently, pursuant to certain amendments to Italian securitisation law (Law No. 130 of 30 April 1999), a new special purpose vehicle for the securitisation of proceeds arising from real estate properties (RE SPV) has been introduced in Italy, and the Italian Revenue Agency recently commented on their advantageous tax regime in a public ruling. RE SPVs now sit together with real estate operating companies (ReOCo) and leasing companies (LeaseCo), special purpose vehicles dedicated to the acquisition of assets relating to the securitisation of receivables originated by Italian banks and financial intermediaries secured by real estate assets.

ii Property and transfer taxes

The ownership of real estate properties located in Italy is subject to property tax (IMU).

The IMU tax base is equal to the cadastral value (rather than the market value) increased by 5 per cent and adjusted applying certain parameters provided for by the law. The IMU rate is determined annually by the municipality where the real estate property is located, within a range set out at national level (from 0.86 to 1.14 per cent), as provided by Legislative Decree No. 23 of 14 March 2011 (the IMU Law) and Article 1 (738–782) of Law No. 160 of 27 December 2019. A wider reform of the cadastral values of real estate assets to align to market values has recently been announced by the government, but there are no indications so far as to timing and method of determinations of the values.

IMU is payable with respect to the ownership of real estate properties in Italy, regardless of the type of investment vehicle holding the properties (i.e., corporate vehicle, real estate investment fund, real estate SICAF or SIIQ).

The transfer of the ownership of real estate properties located in Italy triggers the following indirect taxes: value added tax (VAT), registration tax, mortgage tax, cadastral tax and minor stamp duties (see Section II.iii).

Asset deals versus share deals

i Legal framework

Investments in real estate properties may occur either through an asset deal, whereby the investor acquires the property directly, or through a share deal, whereby the investor acquires a participation in a company that owns the relevant property.

With respect to due diligence requirements, asset deals are usually straightforward. The purchaser acquires only the real estate property. From a tax perspective, the relevant due diligence is usually focused on the assessment of the existence of any possible real estate lien provided for by the Italian Civil Code or by the tax laws that may derive from certain tax liabilities related to the property (e.g., certain unpaid indirect taxes).

However, with respect to acquisition formalities, asset deals are generally more complicated than share deals. Indirect taxes are due on the registration of the deed of transfer (registration tax) and on the formalities in the real estate public registries (mortgage and cadastral taxes). In addition, VAT may apply depending on the real estate property being purchased (see Section II.iii).

Share deals entail that the investor acquires a participation in the entity that owns the real estate property. This investment structure usually requires a broader tax due diligence on the whole entity (e.g., formalities related to the tax returns, payment of direct taxes and other specific issues for real estate companies). In addition, the structuring is more complex since any financial flow (such as interest on shareholders' loans, dividend distributions and exit strategies) would require an investor to take into consideration the evolution of the international tax framework to reduce or minimise taxation and prevent double taxation.

With respect to indirect taxes, share deals are subject only to minor registration tax duties on the deed of transfer of the shares (i.e., no mortgage and cadastral taxes are due). Furthermore, the transfer of the shares would be exempt from VAT.

ii Corporate forms and corporate tax framework

The most common non-regulated vehicles for real property investment are limited liability companies, joint-stock companies or, in minor cases partnerships, the latter being transparent for tax purposes by law.

For these purposes, partnerships can also include companies that have elected the tax transparency regime,3 on meeting certain requirements.4

Real estate companies are subject to corporate income tax (IRES) at a rate of 24 per cent on a tax base equal to the net income resulting from the profit-and-loss account, duly adjusted according to the tax rules.

Deductible expenses from the IRES tax base include, inter alia, the following: interest expenses, depreciation of real estate properties,5 a portion of IMU on non-residential properties6 and other inherent expenses.

In particular, interest expenses are deductible according to the following rules:

  1. the ordinary rule: interest expenses (net of interest income) paid by the company on third-party loans and shareholders' loans are deductible from the IRES tax base up to 30 per cent of the gross operative income determined for tax purposes (approximately equal to the earnings before interest, taxes, depreciation and amortisation (or EBITDA)) of the relevant tax period; and
  2. the specific rule for real estate companies: interest expenses on mortgage bank loans are fully deductible from IRES tax base provided that the company mainly leases real estate assets, based on certain parameters provided by the law.7

In addition, it must be carefully considered whether companies investing in real estate properties fall within the scope of the dormant companies regime.8 A company may be considered dormant if the income resulting from the profit-and-loss account of the relevant tax year is lower than a deemed income, which is derived from the application of the rates as defined by the law to the value of the fixed assets accounted for in the relevant annual financial statements (e.g., 6 to 5 per cent for real estate properties accounted for as fixed assets).

If a company is considered 'dormant', certain negative consequences apply. In particular, the IRES rate is increased by 10.5 per cent (i.e., to 34.5 per cent) and applied on a deemed income, calculated as a percentage of the value of the assets accounted for in the balance sheet (e.g., 4.75 per cent for real estate properties accounted for as fixed assets). Furthermore, certain limitations to the recoverability of VAT credits would apply.

Finally, real estate companies are subject to the regional tax on business activities (IRAP) levied annually on the net value of company production derived from the activity carried out in the territory of each Italian region. The IRAP standard rate is 3.9 per cent and may be locally increased up to 8.5 per cent, depending on the activity carried out.

Income realised by partnerships9 is considered business income10 and it is in principle determined under the same rules provided for real estate companies.11

However, partnerships are transparent for tax purposes, therefore income realised by them is subject to tax in the hands of the partners, irrespective of the effective distribution, and in proportion to the shares held.12

iii Direct investment in real estate

This subsection is focused on indirect taxes (on purchase) and direct taxes (on holding and disposal) applicable in the case of direct investment by a non-resident entity in real estate properties in Italy (i.e., asset deals).

Indirect taxes on the sale and purchase of real estate properties

The indirect taxes regime applicable to the sale and purchase of real estate properties located in Italy mainly depends on the characteristics of the seller. If the seller is registered for VAT in Italy, in principle the transfer is subject to VAT.

Furthermore, the indirect taxes regime depends on whether the property qualifies as commercial building or residential building according to the cadastral classification in the public real estate registries.

The transfer of commercial buildings located in Italy made by a VAT-registered person is subject to the following VAT regimes:13

  1. VAT exemption (ordinary regime);
  2. VAT under the reverse charge procedure (10 or 22 per cent) if the seller opts for the application of VAT in the sale-and-purchase agreement and for these purposes the non-resident purchaser should obtain a VAT position in Italy (i.e., a VAT identification number or appointment of a fiscal representative);14 or
  3. VAT (10 or 22 per cent) without the reverse charge procedure, if the seller built the property or carried out and completed renovation works listed under Article 3(1)(c),(d),(f) of Presidential Decree No. 380/2001 in the five years before the sale.

Regardless of the VAT regime, the deed of purchase in respect of commercial buildings that are subject to VAT is also subject to registration tax at the fixed amount of €200.15 Mortgage tax and cadastral tax (transfer taxes) apply at rates of 3 and 1 per cent16 respectively on the fair market value. Such rates are reduced to 1.5 and 0.5 per cent if at least one of the counterparties is a real estate investment fund or a real estate investment company with fixed capital (SICAF) established under Italian law. Based on EU case law, such reduction should not apply in the case of an investment fund established under the laws of a foreign jurisdiction.17 Furthermore, the General Advocate Gerard Hogan recently concluded that such restriction would be compliant to the principle of free movement of capital (Article 63 of TFUE).18 On the other hand, at the domestic level, the Provincial Tax Court of Milan ruled in favour of the applicability of the reduced transfer taxes to a real estate investment fund established in France subject to supervision in the state (Judgment No. 5952 of 28 December 2018).

The purchase of residential buildings located in Italy is subject to the following VAT regimes:19

  1. VAT exemption (ordinary regime);
  2. VAT under the reverse charge procedure (10 or 22 per cent) if the seller has built the property or carried out renovation works more than five years before the sale and opts for the application of VAT in the sale-and-purchase agreement. For those purposes, a non-Italian EU resident purchaser (who is subject to VAT in his home country) should obtain a VAT position in Italy (i.e., a VAT identification number or appointment of a fiscal representative);20 or
  3. VAT (10 or 22 per cent)21 without the reverse charge procedure, if the seller has built the property or carried out renovation works in the five years before the sale.

Notably, without the reverse charge procedure, the seller would issue an invoice with VAT and the purchaser would pay it to the seller together with the price. The purchaser would have the right to recover input VAT paid as a deduction from output VAT, depending on its activity and under specific rules. Conversely, under the reverse charge procedure, the seller issues an invoice without VAT (to be integrated by the purchaser) and no financial flow of VAT is paid by the purchaser to the seller, thus eliminating the financial burden related to the funding of VAT. Rules to deduct input VAT would apply as well.

The VAT taxable amount is the consideration agreed for the sale between the parties,22 namely the price resulting from the transfer deed.

For residential buildings, if there is a VAT exemption, the registration tax applies at the rate of 9 per cent on the fair market value,23 while transfer taxes apply at the fixed amount of €50 each.24 If the seller opts for VAT to be applied or VAT is compulsory, then registration tax, mortgage tax and cadastral tax apply in the fixed amount of €200 each.25

Income taxes on rental income

Rental income received by a non-resident entity from the lease of real estate properties located in Italy is subject to IRES.

If the non-resident entity does not have a permanent establishment (PE) in Italy for tax purposes, the income is determined as whichever is the higher of the deemed income of the property pursuant to Italian cadastral law and 95 per cent of the annual rent.26

IRAP is not applicable, if the non-resident entity does not have a PE in Italy.27

Capital gains

Capital gains from the sale of real estate properties located in Italy by a non-resident entity may be, alternatively:28

  1. subject to IRES, if the sale occurs within five years of the purchase of the property; or
  2. exempt from IRES, if the sale occurs after five years from the purchase.

PE issues

As clarified by the Italian Supreme Court,29 the mere ownership and lease of real estate properties in Italy by a non-resident entity does not, per se, give rise to a PE in Italy. However, if the property is used to carry out a business activity by the non-resident entity or it is itself the object of the business activity (e.g., the activity of sale and purchase of real estate properties), this circumstance may in principle entail a PE issue.

The question is relevant since, if the non-resident entity has a PE in Italy, it would be subject to IRES and IRAP on the profits attributable to that PE (see Section VI).

iv Acquisition of shares in a real estate company

This subsection is focused on indirect taxes applicable to the purchase by a non-resident entity of a participation in an Italian real estate property company, and on the tax treatment of dividends and capital gains at disposal (i.e., share deals).

Indirect taxes on share purchases

The purchase by a non-resident person of shares in a real estate company resident in Italy is outside the scope of VAT.30 The deed of purchase, if executed in Italy, is subject to registration tax at a fixed amount of €200;31 conversely, if not executed in Italy, it is outside the scope of the registration tax.32

If the real estate company is incorporated as a joint-stock company, the purchase of such shares is in principle subject to the financial transaction tax33 (the Tobin tax), at 0.2 per cent of the price of the shares. The Tobin tax is paid by the intermediary involved in the transaction or by the public notary (on behalf of the purchaser) or directly by the purchaser.34 The Tobin tax is paid by means of the ordinary form of payment (F24) within 16 days of the month in which the purchase is executed.35

Dividend distributions

Dividends distributed by an Italian resident real estate company to a non-resident shareholder are subject to the following withholding tax regime:

  1. in principle, a domestic withholding tax applies at the rate of 26 per cent;36
  2. reduced rates are available under the applicable double tax treaty between Italy and the state of the non-resident shareholder, provided that the non-resident shareholder qualifies as a beneficial owner of the dividends and is eligible to benefit from the double tax treaty;
  3. the domestic rate is reduced to 1.2 per cent, provided that the non-resident shareholder is resident for tax purposes in an EU or European Economic Area (EEA) country and subject to corporate income tax;37
  4. no withholding tax applies under the EU Parent-Subsidiary Directive, as implemented in Italy,38 provided that the non-resident shareholder, as beneficial owner of the dividends:
    • has one of the legal forms listed in the Annex to the Directive;
    • is resident for tax purposes in an EU Member State;
    • is subject to one of the taxes listed in the Annex to the Directive without the possibility of benefit from an exemption; and
    • holds at least 10 per cent of the capital of the company for at least one year;
  5. to benefit from the withholding tax exemption, specific documentation (i.e., a self-certification attesting the holding requirement and tax residence certificate) must be collected by the company distributing the dividend, before the dividend distribution; and
  6. according to guidelines issued by the Italian Revenue Agency,39 the application of the exemption under the Parent-Subsidiary Directive must be verified analysing the actual features of the non-resident entity, considering, inter alia, its organisational structure in the context of its business activity (i.e., a holding company), its financial structure and its autonomy with respect to the management of dividends received. Furthermore, recent decisions of the Court of Justice40 of the European Union and the Italian Supreme Court41 must be taken into consideration.

Under a new provision introduced by the 2021 Budget Law,42 starting from 1 January 2021, Italian withholding tax does not apply to dividends distributed by an Italian resident company to:

  1. foreign investment funds compliant with Directive 2009/65/EC (i.e., the UCITS Directive); or
  2. foreign investment funds (not compliant with Directive 2009/65/EC) established in an EU Member State or EEA Member State, allowing for an adequate exchange of information for tax purposes, and whose manager is subject to regulatory supervision in the country where it is established pursuant to Directive 2011/61/EU (i.e., the AIFM Directive).

As mentioned in Section II.ii, income realised by Italian resident partnerships is subject to tax in the hands of the shareholders, irrespective of the effective distribution and proportionally to the shareholding held.43

Capital gains on the sale of the shares or quotas

Capital gains realised by a non-resident shareholder on the disposal of the real estate company's shares are subject to the following tax regime in Italy:

  1. In principle, a substitutive tax in lieu of IRES and IRAP applies at a rate of 26 per cent.44
  2. Under domestic rules,45 the substitutive tax does not apply provided that the real estate company's shares are 'non-qualified' shares (i.e., for non-listed companies, shares representing no more than 20 per cent of the voting rights and no more than 25 per cent of the share capital) and the non-resident shareholder is resident for tax purposes in a white list state46 or qualifies as a certain type of investor (i.e., regardless of its tax status, an 'institutional investor' established in a whitelist state, an international organisation, a central bank or a sovereign wealth fund).
  3. Under the applicable double tax treaty between Italy and the state of the non-resident shareholder, it is generally provided that capital gains from the disposal of the company's shares are taxable only in the state of the non-resident shareholder.47 In this respect, double tax treaties may also provide that capital gains from the disposal of shares are taxed in the state where the real estate properties are located if more than 50 per cent of the value of the shares derives from the immovable properties.48 However, generally, Italy has not included such a provision in its double tax treaties. Finally, we note that provisions in double tax treaties with respect to capital gains may be amended, under certain conditions, once the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) enters into force in Italy (see Section VI).

Regulated real estate investment vehicles

i Regulatory framework

The Italian regulatory framework provides two different regulated real estate investment vehicles: real estate investment funds (REIFs); and SICAFs. Italian regulated investment vehicles are commonly used to invest in Italian real estate assets, especially by Italian and foreign institutional investors.

Both REIFs and SICAFs are undertakings for collective investment regulated by Legislative Decree No. 58 of 24 February 1998, as subsequently amended (the Consolidated Law on Finance) and by the implementing provisions issued by the Ministry of Economics and Finance, the Bank of Italy and Consob, the Italian financial regulatory authority.

In particular, REIFs and SICAFs are alternative investment funds (AIFs) within the meaning of the AIFMD. REIFs may only be externally managed by Italian management companies authorised and supervised by the Bank of Italy and Consob or by non-resident EU-passported alternative investment fund managers (AIFMs). SICAFs may be, alternatively, externally managed, like a REIF, or internally managed by its board of directors provided that the SICAF is authorised by the Bank of Italy to the management activities.

ii Overview of the different regulated investment vehicles

REIFs

Pursuant to the Consolidated Law on Finance,49 REIFs are collective investment schemes established as an independent pool of assets, divided into units, pertaining to a plurality of investors and managed on a collective basis by a third-party management company independently and in the investors' interest, on the basis of a predetermined investment policy.

REIFs, to qualify as such, should invest at least two-thirds50 of the total value of their assets in real estate assets, which include, inter alia, buildings, lands and equity holdings in real estate companies or in other REIFs, including foreign REIFs.

The establishment of a REIF reserved to professional investors is not subject to prior authorisation by the Bank of Italy, but it may be subject to the authorisation of Consob unless it is established under the 'reverse enquiry' procedure.

More specifically, the main regulatory requirements of REIFs can be summarised as follows.

Capital autonomy

The REIF is an independent and segregated pool of assets, separated from the assets of the management company and from the assets of each investor, as well as from any other investment fund managed by the same management company. Therefore, claims on the REIF's assets by creditors of the management company (or other REIFs managed by the same management company) or in the interests of those parties are not allowed.

Plurality of investors

The capital of the REIF must be raised from a plurality of investors. The requirement is fulfilled if a single investor invests on behalf of a plurality of investors (e.g., foreign investment funds, pension funds, insurance companies and portfolio asset managers). Therefore, the requirement would be satisfied if the REIF is participated only by a single unit holder, to the extent that the unit holder represents a plurality of interests.

Independence of the management company

The management company should act independently and in the interest of the REIF's investors. It has the decision-making powers on the day-to-day management of the assets of the REIF. The REIF's investors do not have any decision-making powers on operational matters relating to the daily management of the REIF's assets. This requirement would be subject to supervision by the Consob and the Bank of Italy, since the management company is a regulated fund manager.51 The management company would have certain reporting obligations to Consob and Bank of Italy. EU-passported AIFMs would be subject to supervision in their home country.

SICAFs

Pursuant to the Consolidated Law on Finance, SICAFs are closed-ended undertakings for collective investment incorporated in the form of a joint-stock company with fixed capital, having as their exclusive purpose the investment of their capital collected through the issue of shares, among a plurality of investors, managed as a whole in the interest of its investors and independently from them.

SICAFs are generally subject to the same regulations provided for REIFs with respect to, inter alia, investment activity, risk concentration limits, plurality of investors, etc. Specific differences are provided to consider the different nature of the SICAF (as an AIF incorporated in the form of a company) as opposed to REIFs (as an AIF established in contractual form).

SICAFs can be either externally or internally managed. The establishment of a SICAF is subject to prior authorisation by the Bank of Italy. The authorisation procedure of an internally managed SICAF may be longer than for those that are externally managed since the process also requires the authorisation of the company as a fund manager.

iii Taxes payable upon acquisition of real estate assets

The acquisition of real estate assets by REIFs or SICAFs may be pursued either by direct purchase against cash payment or by contribution of the real estate assets by the investor in exchange for units or shares.

Indirect taxes on the purchase of real estate properties

The purchase of real estate assets by REIFs or SICAFs is subject to VAT and registration tax pursuant to the ordinary rules (see Section II.iii, 'Indirect taxes on the purchase of real estate properties').

Conversely, mortgage and cadastral taxes apply at the reduced rates of 1.5 and 0.5 per cent respectively52 (half the ordinary rates). That reduction applies to the extent that the agreement is entered into by a REIF or by a SICAF (as purchaser or seller).

See Section II.iii, with respect to recent EU and domestic case law positions on the applicability of such reduction to investment funds established abroad.

Indirect taxes on the contribution of real estate properties

The contribution of real estate properties to REIFs or SICAFs (i.e., the transfer of the properties to the vehicles in exchange for units) is subject to the same indirect tax regime applicable to the sale of real estate properties. The tax is on the value of the assets contributed.

A special tax regime is provided for the contribution of a 'plurality of real estate properties mainly leased at the time of the contribution' to REIFs or real estate SICAFs.53 According to that regime, the contribution is outside the scope of VAT and is subject to registration, mortgage and cadastral taxes at the fixed amount of €200 each.

Based on the clarification provided by the Revenue Agency:54

  1. the plurality requirement is satisfied if the portfolio includes more than one 'single real estate asset'. To this end, a single real estate asset is an asset recorded as a single unit in the cadastral registry.
  2. the mainly leased requirement is satisfied if, at the time of the contribution, more than 50 per cent of the value of the portfolio contributed consists of leased real estate properties.

Income taxes on the sale or contribution due from the seller or contributor

The sale or contribution of real estate properties, in principle, may generate a taxable gain in the hands of the seller or contributor, which is subject to ordinary direct taxes on the difference between the value of the consideration received and the tax base of the asset in the hands of the seller.

In the case of contribution, capital gains would be subject, alternatively, to income taxes under the ordinary rules (including the possibility of offsetting with available tax losses) or to a 20 per cent substitutive tax55 in lieu of the ordinary income taxes (without being able to carry tax losses forward).

iv Tax regime for the investment vehicle

Direct taxes

In principle, REIFs are taxable persons for the purpose of IRES and IRAP, since they qualify as undertakings for collective investments established in Italy.56

However, REIFs are exempt from IRES (24 per cent) and IRAP (3.9 per cent) if, and to the extent that, they meet the regulatory requirements to qualify as undertakings for collective investment provided by the Consolidated Law of Finance (such as, inter alia, plurality of investors and independence of the fund manager).57

In any case, REIFs are exempt from IRES and IRAP if they are participated exclusively by institutional investors. In this case, they qualify as institutional funds for tax purposes and are exempt from IRES and IRAP regardless of any further analysis, from a tax perspective, about the regulatory requirements set out for alternative investment funds.58

The category of institutional investor includes:

  1. the Italian state and other Italian public entities;
  2. undertakings for collective investment;
  3. complementary pension funds and statutory social security entities;
  4. insurance companies, when the investment is intended to cover technical provision;
  5. banking and financial entities if subject to regulatory supervision;
  6. all the above entities established in a state that allows the adequate exchange of information for tax purposes included in the list provided in the Ministerial Decree of 4 September 1996;
  7. private entities resident in Italy who carry out their activities in non-profit areas and cooperatives pursuing the mutual benefit of their members and certain third parties; and
  8. vehicles in corporate or contractual form, owned for more than 50 per cent by any of the aforementioned entities.

The tax treatment of SICAFs for IRES purposes would be the same as for REIFs. Conversely, differently from REIFs, SICAFs may be subject to IRAP, whose tax base is equal to the difference, if any, between subscription fees received by the SICAF and those paid by the SICAF for the placement of the shares,59 if any. The general applicable IRAP tax rate is 4.65 per cent.60

Furthermore, the Revenue Agency clarified that the financial advisory activity rendered by a SICAF in relation to the asset investment activity carried out should be included in the tax exemption regime for IRES purposes, provided that the main activity of the SICAF could not be carried out without the advisory activity.61 In other words, the exemption from IRES may not be limited to the income from the investments of the SICAF but can include, under certain conditions, income deriving from ancillary and instrumental activities such as financial advisory and management of assets.

VAT

A specific VAT regime is provided for REIFs, pursuant to which the management company (and not each of the REIFs managed) is the taxable person for VAT purposes.62 In particular, the sale of 'goods' (the sale of real estate assets) and the supply of services (the lease of real estate assets) carried out by the REIFs established and managed by the management company represent separate accounts of the management company for VAT purposes.

Accordingly, the management company applies the VAT separately with respect to each REIF managed. To this end, the management company determines and calculates the VAT separately with respect to the activity carried out by itself and by each REIF managed, keeping separate VAT registers, issuing invoices with different numbering and recording the transactions distinctly.

However, being a single VAT person, the management company files a single VAT return (which includes separate forms for each of the REIFs managed) and makes a single cumulative payment for the VAT due by itself and by all the REIFs managed (or accounts for single VAT credits).

The Revenue Agency has recently clarified that, in the event of a change of the manager of a REIF, the new management company seamlessly takes over the VAT position of the previous one in relation to all the transactions carried out by the REIF during the year in which the change of manager occurs.63 This VAT treatment also applies in the event that the management company is established in another EU Member State and manages an Italian REIF under the AIFMD passport regime (without a PE in Italy).64 However, specific issues may arise with respect to the fulfilment of the application of VAT in Italy by an EU management company that is a VAT taxable entity in another EU Member State; some of these issues have been addressed by the Revenue Agency in unpublished tax rulings.

Unlike REIFs, SICAFs (internally or externally managed) are taxable persons for VAT purposes in Italy and have their own VAT position, distinct from that of the management company, as confirmed by the tax authority.65 Therefore, in the case of a SICAF externally managed by an Italian management company or an EU management company under the AIFMD passport regime, the transactions of the SICAF would be considered as carried out by the SICAF as VAT taxable person not by the management company.

v Aspects of VAT for multi-compartment real estate SICAFs

In a recent public answer,66 the Revenue Agency clarified, for the first time, certain aspects of VAT for multi-compartment real estate SICAFs.

Pursuant to Article 8 of Law Decree No. 351 of 25 September 2001, the management company, and not each of the REIFs managed, is the taxable person for VAT purposes for the sale of goods and supply of services carried out by the REIFs. In principle, the VAT regime provided for REIFs is also applicable to real estate SICAFs pursuant to related provisions of law.67

However, the Revenue Agency clarified that the SICAF (internally or externally managed), as a joint-stock company with an autonomous VAT identification number, qualifies as a taxable person for VAT purposes. Therefore, in the case of an externally managed SICAF, the sale of goods and supply of services carried out by the SICAF are to be registered by the SICAF itself, with its VAT identification number, and not by the management company (as is the case for collective investment vehicles).

Furthermore, in the public answer, the Revenue Agency issued guidelines on certain aspects of VAT compliance in relation to the individual compartments of the SICAF (e.g., VAT liquidations, VAT payments and VAT returns).

Withholding taxes on incoming income

REIFs and SICAFs are exempt from most of the withholding or substitutive taxes generally applied on financial income.68

In particular, the Revenue Agency has clarified that REIFs are not subject to withholding taxes on dividends distributed by Italian companies (e.g., SPAs and SRLs).69

Withholding tax on interest paid on loans by Italian REIFs or real estate SICAFs

Interest expenses paid on loans granted by Italian banks are not subject to withholding tax at the moment of the payment,70 while loans granted by non-resident banks to businesses resident for tax purposes in Italy are generally subject to a 26 per cent withholding tax71 (that may be reduced under double tax treaties). Under Article 26, Paragraph 5 bis of Presidential Decree No. 600 of 29 September 1973 (Decree No. 600/1973), interest expenses paid on medium- and long-term loans granted by banks established in EU Member States to businesses resident in Italy for tax purposes are exempt, under certain conditions, from the ordinary 26 per cent withholding tax in Italy.

The Revenue Agency72 argued that Italian real estate SICAFs, as undertakings for collective investments, do not fall within the definition of businesses for the purposes of such withholding tax exemption. The Revenue Agency's position, although specifically concerning SICAFs, should also apply to REIFs, based on their qualification as undertakings for collective investment.

Therefore, interest expenses on medium- and long-term loans granted by EU banks to Italian real estate SICAFs (or Italian REIFs) should not benefit from the exemption from withholding tax in Italy on related interest expenses.

Consequently, such interest expenses are subject to withholding tax in Italy at the ordinary rate of 26 per cent, which may be reduced under a relevant double tax treaty (generally 10 per cent under Article 11 of the OECD Model Tax Convention). Conversely, Italian real estate companies (established as unregulated entities) do benefit from the withholding tax exemption under the domestic rule on similar loans.

vi Tax regime for investors

Tax regime for resident investors

Proceeds distributed by REIFs and SICAFs to resident investors are subject to a 26 per cent withholding tax73 applied, upon distribution, by the management company or by the depository bank of the units.

The withholding tax is applied in advance with respect to entrepreneurs, partnerships, companies and other commercial entities subject to IRES, and to the Italian PE of non-resident entities. The withholding is final with respect to any other resident investor.

The withholding tax does not apply to proceeds distributed to Italian complementary pension funds and undertakings for collective investment.

The above-mentioned regime would apply also when proceeds are distributed to Italian institutional investors, as defined in Section III.iv. Conversely, the tax regime applicable to Italian 'non-institutional' investors depends on the share of their participation in the REIF, and specifically:

  1. where the share of their participation is 5 per cent or less, the investor is subject to the tax regime described above; and
  2. where the share of their participation is more than 5 per cent, the investor is taxed on a look-through basis, on the profits resulting from the financial statements (i.e., the profits are attributed proportionally to the units held, regardless of their actual distribution).74

Capital gains realised by resident investors by the transfer of the units of REIFs or SICAFs are subject to a 26 per cent substitutive tax.75 The Revenue Agency clarified that if the capital gain is realised by an investor that holds the units in connection with its business activity, the gain is subject to ordinary IRES.76

Tax regime for non-resident investors

Proceeds distributed by REIFs and SICAFs to non-resident investors are subject to withholding tax at the 26 per cent rate or at a reduced rate (e.g., 10 per cent or 15 per cent) under the applicable double tax treaty between Italy and the state of residence of the investor.77 The Revenue Agency78 clarified that, unless specific provision is provided in the double tax treaty, the proceeds distributed by a REIF can be considered 'interest' within the meaning of Article 11 of the OECD Model Tax Convention.

With respect to SICAFs, no guidelines have been provided with respect to the qualification of proceeds distributed. On the one side, the clarifications issued by the Revenue Agency with respect to REIFs should also apply to SICAFs (being collective investment undertakings), but on the other side, it may be argued that they qualify as 'dividends' (since the SICAF is incorporated as a joint stock company).

Proceeds distributed to the following non-resident investors are exempt from withholding tax in Italy under Article 7(3) of Law Decree No. 351 of 25 September 2001:

  1. pension funds and undertakings for collective investment established in a country that allows the exchange of information for tax purposes;
  2. international entities established in accordance with international agreements enforced in Italy; and
  3. central banks or entities that manage the official reserves of a state (sovereign wealth funds).

Capital gains deriving from the sale for consideration or from the redemption of units of REIFs or SICAFs, realised by non-resident investors without a PE in Italy, are deemed to be accrued in Italy if the units are not traded on regulated markets.79 Those capital gains are, in principle, subject to a 26 per cent substitutive tax, in lieu of ordinary income taxes.80 However, if the applicable double tax treaty provides the exclusive right to tax to the state of residence of the investor, capital gains are not taxable in Italy.81

A domestic tax exemption is provided for capital gains realised by certain non-resident investors.82 In particular, capital gains realised by the following non-resident investors83 are not included in the taxable income and are, therefore, exempt from the 26 per cent substitutive tax:

  1. entities resident in a state that allows the exchange of information for tax purposes;
  2. international entities or bodies established on the basis of international treaties implemented in Italy;
  3. institutional investors (i.e., entities whose principal purpose is investment management activity) established in a state that allows the exchange of information for tax purposes, regardless of their legal form and their tax status in the foreign states in which they are established; and
  4. central banks or organisations that also manage the official reserves of a state.

vii Withholding tax exemption if the investor qualifies as a foreign collective investment undertaking

On the basis of the guidelines issued by the Revenue Agency, exemption on proceeds distributed to foreign collective investment undertakings is applicable provided that:

  1. according to the applicable law of the state in which they are established, the non-resident collective investment undertakings meet the fundamental requirements of and have the same investment purposes as Italian REIFs, regardless of their legal form and tax status; and
  2. those undertakings, or the entities appointed for their management, are subject to supervision, namely, the beginning of the activity is subject to a prior authorisation and the carrying out of the activity is subject to controls on an ongoing basis under the rules in force in the foreign state.84

In previous tax rulings, the Revenue Agency confirmed that the regulatory supervision requirement is satisfied for foreign collective investment undertakings externally managed by managers regulated by the UCITS IV Directive85 and by the AIFMD, given that, pursuant to those Directives, regulatory supervision is expressly required and must be recognised in all Member States.

In this context, in an unpublished ruling dated 2016, the Revenue Agency considered those investors that were established in countries located outside the EU but that have voluntarily implemented 'AIFMD-like' legislation approved by the European Securities and Markets Authority to be assimilated to AIFMD-compliant entities (including, to date, Guernsey, Hong Kong, Jersey, Singapore, Switzerland and the United States).

Conversely, no clarifications were provided for foreign collective investment undertakings not regulated under those Directives, such as US partnerships managed by entities regulated by the SEC.

In 2017,86 the Revenue Agency recognised that the supervision exercised by the SEC over registered investment advisers (and on their 'relying advisers' also registered with the SEC under the 'umbrella registration' procedure) is considered valid for the purposes of the Italian withholding tax exemption on proceeds distributed by Italian REIFs. In light of this, US limited partnerships managed by investment advisers or relying on advisers registered with the SEC may qualify for the withholding tax exemption.87

The existence of regulatory supervision may be demonstrated by using the information on the SEC's public website,88 and by submitting to the Italian withholding agent (i.e., the management company) Form ADV filed with the SEC at the time of registration, along with any subsequent amendment.

Finally, the Revenue Agency has also clarified89 that if the investment adviser is entitled to carry out the management and is registered with the SEC, the general partner of the foreign collective investment undertaking does not need to be registered with the SEC.

On the basis of those clarifications, foreign collective investment undertakings managed by entities regulated by the SEC may invest in real estate properties in Italy, through an Italian REIF, without income tax liability on the income realised by the REIF or on the proceeds distributed to the foreign unit holder.

viii Withholding tax exemption on investments by foreign REITs

In a recent public answer to a tax ruling,90 the Revenue Agency provided some clarification on the withholding tax exemption on proceeds distributed by an Italian REIF to a REIT established in Singapore and managed by an entity authorised by the Monetary Authority of Singapore (MAS). The Revenue Agency emphasised that, in principle, on the basis of the guidelines of the European Public Real Estate Association, REITs do not satisfy the requirements to be considered similar to collective investment undertakings established under Italian law for Italian tax purposes. Therefore, in principle, REITs would not qualify as institutional investors and would not benefit from the withholding tax exemption unless they also fit within the definition of collective investment undertaking.

Indeed, with respect to the case analysed in this ruling, the Revenue Agency clarified the following points:

  1. under the laws of Singapore and on the basis of features described in the request for a ruling, the Singapore REIT had features similar to those of Italian REIFs (e.g., the requirements for plurality of investors and the independence of the management company were met); and
  2. the external manager of the Singapore REIT was subject to the regulatory supervision of the competent authority in Singapore (i.e., MAS).

Based on the above, the Revenue Agency stated that the Singapore REIT did, in fact, qualify as an institutional investor and therefore would benefit from the withholding tax exemption on proceeds distributed by an Italian REIF.

Based on our experience, the possibility for foreign investors applying the withholding tax exemption is evaluated on a case-by-case basis, since it is strictly dependent on foreign local laws and on the characteristics and status of the investors. In this respect, an assessment can be initiated by filing a tax ruling request with the Revenue Agency, which generally adopts an open and cooperative approach.

Real estate investment trusts and similar structures

i Legal framework

The Italian SIIQ regime was introduced in Italy by Article 1, Paragraphs 119–141 bis of Law No. 296 of 27 December 2006 to provide a special civil law and tax regime applicable to Italian listed real estate investment companies that meet certain requirements and whose main activity is the rental of real estate properties, in line with similar institutions in other European countries (e.g., Spain and France).

The regime applies also to Italian unlisted real estate investment companies that are subsidiaries of SIIQs and meet certain requirements (SIINQs).

Moreover, the SIIQ regime applies to Italian PEs of foreign REITs that mainly carry out letting activities of real estate properties through participations in SIINQs91 and are established in EU and EEA Member States that allow an adequate exchange of information for tax purposes with Italy.

The SIIQ and SIINQ regime was subsequently amended by Article 20 of Law Decree No. 133 of 12 September 2014 (converted by Law No. 164 of 11 November 2014), which introduced significant changes in the conditions for accessing the regime. However, the implementing provisions for the SIIQ and SIINQ regime are contained in Ministerial Decree No. 174 of 7 September 2007, which at the time of writing has not yet been amended to implement the changes introduced in 2014.

Finally, the Revenue Agency clarified the application of the SIIQ and SIINQ regime in Revenue Agency Circular Letters Nos. 8/E/2008 and 32/E/2015 and the Regulations of the Director of the Revenue Agency of 18 December 2015 (which established the procedures to exercise the option for the special regime).

ii Requirements to access the regime

Subjective, shareholding and statutory requirements

SIIQs are joint-stock companies, resident for tax purposes in Italy, whose main activity is the rental of real estate properties and whose shares are listed on the Italian stock exchange or on regulated markets of EU or EEA Member States that allow an adequate exchange of information for tax purposes with Italy. In addition, there are the following requirements to access the regime:

  1. no single shareholder should own, directly or indirectly, more than 60 per cent of the voting rights and more than 60 per cent of the profit participation rights (the control threshold); and
  2. at least 25 per cent of the shares are owned by shareholders that, at the moment of the option for the special regime, individually do not hold, directly or indirectly, more than 2 per cent of voting rights and more than 2 per cent of profit participation rights (the free-floating threshold).

The control threshold must be satisfied continuously. If the threshold is exceeded because of M&A transactions or capital market transactions, the SIIQ regime is suspended until the requirement is restored.

The free-floating threshold must be satisfied only to access to the SIIQ regime and at the time of access. The requirement is not applicable to companies already listed on regulated markets.92

The requirements must be met by the end of the first fiscal year of application of the SIIQ regime; in this case the SIIQ regime has effect starting from the first day of that fiscal year. However, if at the end of the first fiscal year only the free-floating threshold is met, the control threshold must be met within the next two years; in this case the SIIQ regime has effect starting from the first day of the year in which the control threshold is met.

Until both requirements are met, IRES (at the standard rate of 24 per cent) and IRAP (at the standard rate of 3.9 per cent) are due pursuant to the ordinary rules. Conversely, the entry tax due for access to the SIIQ regime (see Section IV.iii) and other taxes (direct and indirect taxes on the contributions of real estate properties to the SIIQ) are applied temporarily according to the more favourable rules set out in the SIIQ regime. If the requirements are not met on a timely basis, the taxes are re-determined on the basis of the ordinary rules and the amounts already paid can be offset as tax credit.93

To access the SIIQ regime, eligible companies must file a specific form with the Revenue Agency by the end of the fiscal year prior to the year in which they intend to apply the special regime.

Starting from the year in which a company's SIIQ regime enters into effect, the company's name must include the words 'società d'investimento immobiliare quotata' or the designation 'SIIQ' and the company's by-laws must be amended accordingly (together with other amendments required by law).94

SIINQs are joint-stock companies, resident for tax purposes in Italy, whose main activity is the rental of real estate properties, whose shares are not listed, in which a SIIQ (also jointly with other SIIQs) owns at least 95 per cent of voting rights and at least 95 per cent of profit participation rights.95

In addition, SIINQs must adopt International Financial Reporting Standards (formerly International Accounting Standards (IAS)) in preparing their financial statements and must opt to consolidate with the SIIQ parent company for income tax purposes.

To access the SIINQ regime, eligible companies must opt for the special regime jointly with the SIIQ parent company. The Revenue Agency96 clarified that 'jointly' means that an eligible company must opt to be subject to the regime from the same fiscal year as that in which the SIIQ exercised the option or from a subsequent fiscal year.

The requirements on SIIQs to amend by-laws must also be satisfied by SIINQs.

Objective requirements

SIIQs are deemed to carry out the rental of real estate properties as their 'main' activity if the following requirements are met:97

  1. The asset test: at least 80 per cent of the SIIQ's assets must consist of:
    • real estate properties held for lease; and
    • participations accounted as fixed assets in SIIQs, SIINQs, Italian real estate investment funds or Italian real estate SICAFs, at least 80 per cent of whose assets consist of real estate assets held for lease or participations in real estate investment companies, real estate investment funds and real estate SICAFs that carry out lease activity or SIIQs and SIINQs (qualifying REIFs and qualifying SICAFs).
  2. The profit test: at least 80 per cent of SIIQ's positive components of income must consist of:
    • proceeds from the lease activity;
    • dividends from participations in SIIQs, SIINQs, qualifying REIFs and qualifying SICAFs deriving from the lease activity; and
    • capital gains realised on the disposal of real estate properties held for lease or of participations in SIIQs, SIINQs, qualifying REIFs and qualifying SICAFs.

The asset test and the profit test must be verified on the basis of each year's financial statements, starting from the first year of application of the SIIQ regime.

Ministerial Decree No. 174 of 7 September 2007 and the Revenue Agency provided further details regarding the assessment of the tests. It has been clarified that, inter alia, non-Italian real estate properties held for lease and real estate assets under construction or subject to renovation works (if they are intended to be leased subsequently) may be included in the asset test.

The asset and profit tests must be satisfied also by SIINQs.

iii Tax regime

Entry tax

Access to the SIIQ regime requires that the fiscal value of the real estate assets held for lease, accounted for in the financial statements at the end of the final fiscal year under the ordinary regime, is aligned to their fair value. The related capital gains (net of any capital loss) may be alternatively subject to a 20 per cent substitutive tax (entry tax) in lieu of ordinary IRES and IRAP or included in the taxable income for IRES and IRAP purposes under the ordinary rules.98

If capital gains are subject to the substitutive tax, the higher fiscal value of the assets is effective starting from the fourth fiscal year following the one in which the company exercised the option for the SIIQ regime. If the assets are sold before that date, capital gains are taxed pursuant to the ordinary rules (i.e., IRES and IRAP at an aggregate of 27.9 per cent) and the 20 per cent substitutive tax already paid can be offset as tax credit. The substitutive tax may be paid in five instalments (plus interest).

Conversely, if capital gains are included in the taxable income for IRES and IRAP purposes, the higher fiscal value of the assets is effective starting from the first fiscal year following the one in which the company exercised the option for the regime. Capital gains may be included for the whole amount in the taxable income of the fiscal year in which the company exercised the option or (only for IRES purposes) in equal instalments in that fiscal year and in the following four fiscal years.

Tax losses realised before the election for the SIIQ regime can be utilised to offset the tax base for the calculation of the 20 per cent substitutive tax or to offset IRES taxable income under the ordinary limits (i.e., in any case, within the limit of 80 per cent of the taxable income).

The same provisions also apply to SIINQs.

Ongoing tax treatment of SIIQs and SIINQs for direct taxes purposes

Starting from the fiscal year in which the SIIQ regime enters into effect, the SIIQ's income deriving from the lease activity is exempt from IRES and IRAP.99 In particular, the income from the lease activity includes:

  1. the rental income;
  2. dividends and proceeds from the lease activity distributed by SIIQs, SIINQs, qualifying REIFs and qualifying SICAFs;
  3. capital gains on the disposal of the leased real estate properties; and
  4. capital gains on the disposal of participations in SIIQs, SIINQs, qualifying REIFs and qualifying SICAFs.

Moreover, no withholding taxes are levied on dividends from the lease activity distributed by other SIIQs and SIINQs or on proceeds from the lease activity distributed by qualifying REIFs and qualifying SICAFs to SIIQs.

As described in Section IV.iv, the income deriving from the lease activity is taxed when received by the shareholders of the SIIQ upon distribution.

Conversely, income deriving from activities other than the lease activity is subject to ordinary IRES and IRAP taxation rules (at an aggregate rate of 27.9 per cent) on receipt by the SIIQ. The same treatment for direct tax purposes also applies to SIINQs.

Finally, if the SIIQ regime is applied to the Italian PE of a foreign REIT, starting from the fiscal year for which the option is effective, the lease income of the PE is subject to a 20 per cent substitutive tax in lieu of ordinary IRES and IRAP.

Ongoing VAT regime of SIIQs and SIINQs

SIIQs and SIINQs apply the VAT pursuant to the ordinary rules provided for by the Italian VAT Law (e.g., the lease of commercial real estate properties is exempt from VAT but the lessor has the possibility to exercise the option for the application of VAT, while the lease of residential real estate properties is exempt from VAT except for specific cases).100

Furthermore, SIIQs may apply for the tax consolidation regime for VAT purposes in respect of the companies controlled (SIINQs and standard companies), which allows them to pay the VAT on an overall basis for all the companies included in the consolidation, offsetting the companies' respective VAT credits and debits.

Indirect taxes on the purchase or contribution of real estate properties

The purchase or contribution of real estate assets by or to SIIQs is subject to VAT and registration tax, pursuant to the ordinary rules (see Section II.iii, 'Indirect taxes on the purchase of real estate properties').

Mortgage and cadastral taxes on the purchase or contribution of real estate assets by or to SIIQs apply at the reduced rates of 1.5 per cent and 0.5 per cent respectively,101 as for REIFs and SICAFs.

In addition, the special tax regime provided for contributions of a plurality of real estate properties mainly leased at the time of the contribution also applies to SIIQs (see Section III.iii). Therefore, those contributions would fall outside the scope of VAT and are subject to registration, mortgage and cadastral taxes at the fixed amount of €200 each.102

The same treatment for indirect taxes purposes apply also to SIINQs.

Profit distribution obligations

SIIQs, each year, must distribute at least 70 per cent of the lower of:103

  1. net profits deriving from the lease activity or from participations in SIIQs, SIINQs, qualifying REIFs, qualifying SICAFs; and
  2. total profits available for distribution, according to Italian civil law.

In this respect for SIIQs, as IAS adopter entities, the depreciation of the real estate properties held for lease is not admitted for accounting purposes pursuant to IAS 40 (Investment Properties), thus increasing the actual amount of distribution obligations.

Furthermore, SIIQs must distribute at least 50 per cent of net capital gains realised on the disposal of real estate properties held for lease or of participations in SIIQs, SIINQs, qualifying REIFs and qualifying SICAFs, in the two years subsequent to the disposal.104 The Revenue Agency105 clarified that unrealised capital gains accounted for as a result of the application of the 'fair value method' under IAS 40 for the valuation of real estate properties are not subject to the distribution obligation.

The same distribution obligations apply also to SIINQs.

iv Tax regime for investors

Dividends

Dividends deriving from the SIIQ's exempt lease activity are subject to a 26 per cent withholding tax upon distribution levied by the financial intermediaries where the SIIQ shares are deposited. That withholding tax is applied:106

  1. on account to individual shareholders carrying out a business activity and to corporate shareholders, therefore dividends are included in the individual income tax (IRPEF) basis (at progressive rates of up to 43 per cent) and the IRES taxable income (at a rate of 24 per cent) respectively; and
  2. as final to other shareholders (e.g., individuals not carrying out a business activity and non-resident shareholders). For non-resident shareholders, double tax treaties apply if the relevant conditions are met.

The withholding tax is not applied on dividends distributed to Italian pension funds and to Italian collective investment undertakings.

Dividends distributed to investors that derive from the SIIQ's taxable activities that are different from the exempt lease are subject to the ordinary tax regime. Accordingly, dividend distributions are taxed at the following rates:

  1. corporate shareholders are subject to IRES (at a rate of 24 per cent) on the limited amount of 5 per cent;
  2. individuals carrying out a business activity are subject to IRPEF (at progressive rates of up to 43 per cent) on the limited amount of 58.14 per cent;
  3. individuals not carrying out a business activity are subject to a 26 per cent final withholding tax; and
  4. non-resident shareholders (without a PE in Italy) are subject to a 26 per cent final withholding tax that may be reduced pursuant to applicable double tax treaties if the relevant conditions are met (e.g., to 15 per cent) or pursuant to domestic rules (1.2 per cent under specific conditions). The exemption from withholding tax under the Parent-Subsidiary Directive would apply.

Capital gains

Capital gains resulting from the disposal of SIIQ's shares are taxed at the following rates:

  1. for corporate shareholders, fully subject to IRES (at 24 per cent rate);
  2. for individuals carrying out a business activity, fully subject to IRPEF (at progressive rates of up to 43 per cent);
  3. for individuals not carrying out a business activity, subject to a 26 per cent substitutive tax; and
  4. for non-resident shareholders (without a PE in Italy), subject to a 26 per cent substitutive tax, unless an applicable double tax treaty allows them to be taxed outside Italy.

v Forfeiture of REIT status

The forfeiture of the SIIQ status occurs if the company:

  1. ceases to be a joint-stock company tax resident in Italy, whose shares are listed on regulated markets;
  2. fails to meet the control threshold (unless this failure is due to M&A transactions or capital market transactions, in which case the exempted tax regime is suspended);
  3. fails to meet the asset test or the profit test for three consecutive years or fails to meet both the asset and profit tests in the same year;107 and
  4. fails to meet the profit distribution obligations.108

Those factors also lead to the forfeiture of SIINQ status. In addition, SIINQ status is forfeited if the company ceases to be participated in at least 95 per cent by a SIIQ and if it ceases to have in place the tax consolidation regime with the controlling SIIQ.109

There are no specific penalties in the event of forfeiture of the SIIQ or SIINQ status.

Real estate securitisation vehicles

i Special purpose vehicles for real estate securitisation

Legal framework

Article 7.2 of Law No. 130 of 30 April 1999 (Law No. 130), as amended in 2019 and 2020, provides for a special purpose vehicle (SPV) for the securitisation of proceeds from real estate properties (RE SPV).

Requirements to access the regime

The RE SPV would be incorporated under the Securitisation Law as an unregulated securitisation vehicle. The RE SPV shall have a corporate purpose limited to the securitisation of real estate assets (i.e., the purchase of properties funded through the issuance of notes to investors (the Notes)).

The real estate properties and any proceeds arising from the properties are a separate pool of assets, distinct from the assets of the RE SPV (or the properties of other securitisation transactions).110

The profits from the activity of the RE SPV (e.g., rental activity or sale of properties) are to be used to pay out proceeds under the Notes.111

The RE SPV must appoint an asset manager and a service provider, both of whom must satisfy certain requirements. The RE SPV must also appoint a depositary bank.112

Tax regime

Ongoing tax treatment of RE SPVs for direct tax purposes

The RE SPV is subject to the same tax treatment applicable to investment vehicles for the securitisation of receivables, on the basis of Article 7(1)(b bis) of Law No. 130, which has extended to the RE SPV, as far as they are compatible, the provisions of Law No. 130 set out for other securitisation vehicles.

Indeed, on the basis of the recent clarifications issued by the Revenue Agency,113 the RE SPV is exempt from IRES and IRAP, given that the profits deriving from the real estate activity are a separate pool of assets, which are to be used to pay the proceeds under the Notes and therefore would not constitute an income attributable to the RE SPV (see Section VII.i).

Upon the conclusion of the securitisation transaction, any outstanding income – arising after all the creditors of the segregated assets and noteholders have been satisfied – would be subject to income taxes (IRES and IRAP) in the hands of the RE SPV.

For VAT purposes, the Revenue Agency clarified that the RE SPV carries out an investment activity similar to the one performed by the ReOCo,114 namely, 'a complex property management activity relevant for VAT purposes', the proceeds of which, however, are not transferred to a securitisation company, but retained by the RE SPV for the purposes of the securitisation. On the basis of such assumption, it has been clarified that the purchase and sale of real estate assets performed by the RE SPV is subject to the ordinary VAT regime.

Lastly, the Revenue Agency confirmed that tax treatment of investors of the RE SPV is the same as for investors in vehicles for the securitisation of receivables, pursuant to Article 7(1)(b bis) of Law 130.

Indirect taxes on the sale or purchase of real estate properties

On the basis of the clarifications issued by the Revenue Agency,115 the sale or purchase of real estate assets of the RE SPV is subject to the ordinary regime for the purposes of VAT, registration tax, mortgage tax and cadastral tax. Moreover, the RE SPV is entitled to opt to pay the VAT due separately, in the case of multiple investment activities being carried out. They would do this by applying the separation regime to the activities for VAT purposes, as provided by Article 36(3) of the Presidential Decree of 26 October 1972, No. 633.

Tax regime on the investors

Interest and other profits paid by the RE SPV under the Notes are subject to a substitutive tax at a rate of 26 per cent if received by, inter alia, individuals who do not carry out a business activity.

Commercial companies, collective investment undertakings and pension funds resident in Italy for tax purposes would not be subject to the substitutive tax as noteholders. Such noteholders would be subject to the income taxes normally applicable to them on interest and other profits paid under the Notes.

In principle, non-resident noteholders would be subject to withholding tax of 26 per cent. However, under Article 6 and Article 7(1)(b bis) of Law No. 130, the withholding tax would not apply to entities established in a state included on the list provided by the Ministerial Decree of 4 September 1996, as amended, allowing an adequate exchange of information for tax purposes; international entities established in accordance with international agreements enforced in Italy; and central banks and entities that manage the official reserves of a state.

ii Parallel SPVs for the real estate securitisation (ReOCo and LeaseCo) legal framework

Under Article 7.1 of Law No. 130, a dedicated real estate company (ReOCo) is an investment vehicle whose activity is strictly limited to functioning as a parallel SPV for the securitisation of receivables originated by Italian banks and financial intermediaries secured by real estate assets, such as non-performing loans (NPLs). If the securitisation of receivables concerns, together with real estate assets subject to leasing, relative leasing contracts or legal relations deriving from the termination of these contracts, a dedicated 'leasing company' (LeaseCo) may be established to purchase the leasing contracts together with the assets covered, which will be managed and enhanced accordingly.

Requirements to access the regime

Parallel SPVs are established in the form of joint-stock companies with a corporate purpose limited to the purchase, management and sale of real estate properties that constitute the guarantee of NPLs, in connection with the securitisation of those NPLs. LeaseCo must be consolidated in the financial statement of a bank or a financial intermediary pursuant to Article 106 of Legislative Decree No. 385 of 1 September 1993 (TUB), even if not part of a banking group, and must be liquidated once the securitisation transaction has been concluded.116

The proceeds arising from the real estate properties are a separate pool of assets, distinct from the assets of the parallel SPVs (or the properties of other securitisation transactions). The amounts deriving from the holding, management or disposal of these assets are used exclusively to pay the proceeds under the Notes of the securitisation SPV and to pay the costs of the transaction.117

Tax regime

Ongoing tax treatment of ReOCo and LeaseCo for direct tax purposes

Law No. 130 does not provide a specific ongoing tax regime for parallel SPVs. As clarified by the explanatory report for Law Decree No. 34 of 30 April 2019, parallel SPVs are subject to the same tax treatment applicable to investment vehicles for the securitisation of receivables.

Therefore, on the basis of the guidance issued by the Revenue Agency with respect to SPVs for the securitisation of receivables,118 parallel SPVs should be subject to the same tax treatment as the RE SPV described above, namely exempt from IRES and IRAP with respect to the profits realised during the transaction and, upon the conclusion of the securitisation transaction, the residual profits owned by parallel SPVs, if any, would be subject to income taxes (IRES and IRAP) in their hands.

Indirect taxes on the sale or purchase of real estate properties applicable to ReOCo and LeaseCo

Law No. 130, as amended, provides a specific tax regime for the indirect taxes on the transfer of real estate properties involving parallel SPVs.

In particular, registration, mortgage and cadastral taxes at the fixed sum of €200 for each such tax shall apply in relation to:

  1. the purchase by the ReOCo (or LeaseCo) of the properties that are the object of the transactions performed, even if the transfer is realised through judicial or insolvency proceedings;119
  2. the subsequent transfer of assets by the ReOCo (or LeaseCo) to individuals carrying out business activities, on condition that the purchaser transfers them within five years of the date of purchase;120
  3. the subsequent transfer of assets by the ReOCo (or LeaseCo) to individuals not carrying out business activities who benefit from tax relief for the purchase of their 'primary home';121 and
  4. the transfer, to or by a leasing company, of properties that are the object of leasing contracts terminated or otherwise extinguished in relation to the leasing company,122 as provided for by Article 35c, 10 ter 1 of Law Decree No. 223 of 4 July 2006.

The sale and purchase of the real estate assets of a ReOCo (or LeaseCo) are subject to the ordinary rules on VAT. In this respect, the purchase of contracts of leasing of real estate by the LeaseCo, together with the underlying assets, should be subject to ordinary VAT rules.

International and cross-border tax aspects

i Tax treaties

The Italian tax treaties network includes more than 90 double taxation conventions, which are generally based on the OECD Model Tax Convention, with some differences.

As regards recent developments, once in force and effective, the new double taxation convention with China, signed on 23 March 2019, will replace the current double taxation convention with China (concluded on 31 October 1986).

On 7 June 2017, Italy also signed the MLI, which entered into force on 1 July 2018. However, Italy has still to ratify this multilateral instrument, therefore it has not yet become effective with respect to the tax treaties with Italy that are currently in force.

From the perspective of cross-border real estate investments, Article 13 of the OECD Model Tax Convention deals with the taxation of gains both from the alienation of immovable properties and from shares in real estate entities.123 Under that Article, gains both from shares and from properties are taxable in the state where the properties are located (if certain requirements are met).

In particular, under Paragraph 4, as amended, based on the Base Erosion and Profit Shifting Project Action 6, gains derived by a resident of a contracting state from the alienation of shares or comparable interests (e.g., interests in a partnership or trust) may be taxed in the other contracting state (e.g., Italy) if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50 per cent of their value directly or indirectly from real estate properties situated in that other state (e.g., Italy).

The tax treaties currently in force with Italy, as a rule, do not include a clause based on Article 13, Paragraph 4 of the OECD Model Tax Convention, with a few exceptions.

Article 9 of the MLI addresses the real estate clause set out in Article 13, Paragraph 4 of the OECD Model Tax Convention, strengthening the application of that rule at international level with respect to the tax treaties that already include that rule.

Furthermore, Article 9, Paragraph 3 allows a state to introduce the following provision into a tax treaty:

For purposes of a Covered Tax Agreement, gains derived by a resident of a Contracting Jurisdiction from the alienation of shares or comparable interests, such as interests in a partnership or trust, may be taxed in the other Contracting Jurisdiction if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50 per cent of their value directly or indirectly from immovable property (real property) situated in that other Contracting Jurisdiction.

Italy has opted for the application of Article 9, Paragraph 4 of the MLI with respect to its tax treaties (i.e., the rule addressing gains from the alienation of shares in entities deriving their value principally from immovable properties).124

Once the MLI becomes effective with respect to Italy, Article 9, Paragraph 4 will apply to a tax treaty with Italy only where the other contracting state has also chosen to apply the provision (pursuant to Article 9, Paragraph 8 of the MLI). For example, the option has been exercised by France and therefore the provision should apply with respect to the Italy–France tax treaty after the MLI becomes effective with respect to Italy.125

It is worth noting that tax treaties allocate taxing rights between the contracting states, while the taxable income is identified under domestic rules. Therefore, specific tax exemptions set out by Italian domestic rules with respect to gains realised by a non-resident person should continue to apply, even if Article 9, Paragraph 4 of the MLI is applicable to the treaty between Italy and the state of residence of the non-resident person.

The domestic definition of a PE is set out in Article 162 of the Income Tax Code,126 which is based on the definition in the OECD Model Tax Convention, with some material differences. Law No. 205 of 27 December 2017 further amended the domestic definition of a PE.

Under the revised Article 162, a PE may exist if there is a 'significant and continuous economic presence' in the Italian territory, arranged in a way that does not give rise to a physical presence in Italy.127

The actual impact of that rule on persons resident in a state that has a tax treaty with Italy must be analysed on a case-by-case basis, considering the definition of PE in that tax treaty and whether the rule will be considered by the Revenue Agency and tax courts as an expression of the general anti-abuse rule under Italian tax law.

With respect to cross-border real estate investments, in principle the mere ownership of an immovable property located in Italy does not per se give rise to a PE.128 The existence of a PE in Italy must be determined considering the business activity actually carried out in Italian territory by the non-resident entity in connection with the real estate investment and, in particular, where the management is located.

Furthermore, the Revenue Agency addressed the PE issue with respect to EU alternative investment fund managers (AIFMs) that manage collective investment undertakings established in Italy (e.g., REIFs or SICAFs) under the passport regime set out by the AIFMD.

The Revenue Agency clarified that, under the passport regime, management activity does not require per se a PE in Italy.129 In any case, the existence of a PE in Italy with respect to the activity of a non-resident AIFM must be verified on a case-by-case basis, taking into account the activity actually carried out in Italy by that AIFM.

ii Cross-border considerations

Italian law does not provide specific restrictions on ownership or on investment by a non-resident person in real estate properties located in Italy, except for the 'reciprocity principle'.

Under the reciprocity principle, non-Italian investors are allowed to invest in Italy only if their state of residence allows rights equivalent to those of Italian investors or if their country of residence has an international treaty with Italy that allows those investments.

That limitation would not apply, in any case, for European investors (e.g., EU investment platforms) while could be applicable in some residual cases involving non-EU investors.

iii Locally domiciled vehicles investing abroad

Based on market practice, investment vehicles for real estate investments abroad, namely in jurisdictions other than Italy, by non-Italian investors, including platforms for pan-European investments, are established in other jurisdictions rather than in Italy.

iv DAC 6

Council Directive (EU) 2018/822 of 25 May 2018 (DAC 6), enacted in Italy by Legislative Decree No. 100 of 30 July 2020, imposes on intermediaries and taxpayers mandatory disclosure obligations to tax authorities of EU Member States with respect to cross-border arrangements that meet certain hallmarks.130 A cross-border arrangement qualifies as a 'reportable cross-border arrangement' (RCBA) if it meets at least one of the hallmarks provided for by Annex 1 of Legislative Decree No. 100 of 30 July 2020 (which, basically, transposed Annex IV of the DAC 6).131

If an arrangement qualifies as RCBA, it shall be reported to the Italian tax authority within the following deadlines:

  1. 30 days starting from:
    • the day after the RCBA is made available for implementation or its implementation started; or
    • on the day after the intermediary has provided, directly or through other parties, assistance or advice for the implementation of the RCBA; or
  2. every three months after the first reporting, for transactions enacted through substantially standardised documentation or structure.

Indeed, real estate cross-border transactions that involve Italian and EU entities and that meet one of the provided hallmarks may be subject to the disclosure obligations provided by DAC 6. In this respect, the Italian Revenue Agency recently issued public guidelines132 to individuate the applicable hallmarks and comply with the duties described.

Year in review

Recently, significant clarifications regarding REIFs, SICAFs and RE SPVs have been issued.

On the one hand, a public ruling recently confirmed the applicability of the ordinary regime provided for vehicles issued in the context of the activity of securitisation of receivables, and also in relation to RE SPVs.

On the other hand, Law No. 178 of 30 December 2020 (the 2021 Budget Law) introduced favourable tax provisions for undertakings for collective investment established outside of Italy and investing in Italian resident companies.

The above-mentioned documents, which could have a significant impact on real estate investments in Italy, are described in more detail below.

i Tax regime applicable to RE SPVs

As mentioned in Section V.i, the Revenue Agency has recently clarified that RE SPVs are subject to the same tax regime as vehicles for securitisation of receivables under Law No. 130, and that guidelines issued in the past for the securitisation of receivables are also relevant for real estate securitisation.133

There is growing interest in the real estate industry for such investment vehicles. During 2020, several real estate transactions with RE SPVs were performed, and others are expected to be launched in 2021 due to the recent clarifications published by the Revenue Agency that give more certainty to the tax framework.

ii Exemption of Italian-sourced dividends and capital gains derived by EU undertakings for collective investment

Article 1(631–633) of the 2021 Budget Law introduced favourable tax provisions for undertakings for collective investment (UCIs) established outside of Italy and investing in Italian resident companies. Indeed, dividends or capital gains realised starting from 1 January 2021 and derived from shareholdings in Italian tax-resident companies are not subject to taxation in Italy (in most cases, through withholding or substitute taxes), if realised by:

  1. foreign UCIs compliant with Directive 2009/65/EC (the UCITS Directive); or
  2. foreign UCIs (not compliant with Directive 2009/65/EC) established in an EU Member State or EEA Member State, allowing for an adequate exchange of information for tax purposes and whose manager is subject to regulatory supervision in the country where it is established pursuant to Directive 2011/61/EU (the AIFM Directive).

Such provision counters the less favourable treatment applied to dividends and capital gains realised by foreign UCIs compared to national UCIs. Indeed, dividends and capital gains realised by a UCI established in Italy are exempt from corporate tax, although UCIs are, in principle, taxable entities for Italian corporate tax purposes.

Outlook

i Future developments regarding REIFs and SICAFs

Traditionally characterised by REIFs managed by resident management companies, the regulated market in investments in Italian real estate has seen the development and growth in the past few years of investments carried out through REIFs managed by non-resident EU-passported AIFMs and Italian real estate SICAFs, especially by foreign investors. However, as a market practice, and also in respect of tax considerations related to VAT management and permanent establishment issues, REIFs managed by resident management companies are still the preferred investment structure for foreign investors.

However, the withholding tax exemption starting from 1 January 2021 for dividends and capital gains from participations in Italian companies held by EU UCIs (see Section VII.ii) should render Italian companies more appealing as investment vehicles for such EU funds. Moreover, Italy has adopted specific rules for the revaluation of civil and tax values of real estate assets owned by Italian companies (see Section VIII.ii). That regime may slow down the contribution of real estate assets into REIFs and SICAFs, considering that the step-up regime provides for a lock-up period of four years (i.e., disposals before such time frame would imply the determination of capital gains on the original tax value).

With respect to EU AIFMs, the AIFMD introduced the 'European passport', which allows AIFMs to provide their services in other EU Member States without establishing branches in each state.134 In particular, pursuant to the European passport, AIFMs authorised in their home Member States in accordance with domestic rules implementing the AIFMD are allowed to manage AIFs in other Member States and to sell units or shares of managed European AIFs to European professional investors of other Member States.135 For instance, an AIFM established in France could directly manage a REIF established in Italy. The competent authorities of the home state of the AIFM must provide to the competent authority of the other Member State the information and relevant documentation authorising the management activity or sale of units or shares of AIFs in Europe.

From a tax perspective, if an Italian REIF is managed by an EU AIFM the withholding tax on proceeds would be applied by the foreign AIFM directly or, alternatively, by a tax representative in Italy of the foreign AIFM appointed to satisfy all the withholding tax compliance requirements.136

If the AIFM is established outside Italy and passported for its cross-border activity, certain tax aspects should be carefully considered and analysed, such as PE issues and VAT (e.g., the VAT position of both the AIFM and the managed REIF). Certain VAT issues could be mitigated, for example, in the case of an Italian SICAF managed by an EU AIFM, since the VAT taxable person would be the SICAF rather than the EU AIFM. In any case, as mentioned above, foreign investors still prefer investments in Italian real estate properties through REIFs managed by Italian management companies.

Italian real estate SICAFs were introduced in 2014 through the domestic legislation that implemented the AIFMD,137 to align Italy with other European states where vehicles of this kind are used in both the private equity and the real estate sectors, and use of this structure has grown considerably in recent years.

The use of the real estate SICAF was initially limited because at present the setting up of this investment vehicle requires authorisations from the relevant Italian authorities (the Bank of Italy and Consob) and therefore takes longer (about three to four months) than a REIF does. In addition, as an undertaking for collective investment but incorporated in the legal form of a joint-stock company, a real estate SICAF must comply with ordinary corporate law provisions.

Furthermore, purely from a tax perspective, investors considered that real estate SICAFs did not provide any additional benefits compared with REIFs since the tax regime applicable to SICAFs is basically the same as that provided for REIFs.

However, in recent years the Italian market has been experiencing growth in the use of externally managed real estate SICAFs, especially on the initiative of large foreign investors (such as German funds) that act as founding shareholders and select an Italian management company. In certain cases, some foreign institutional investors may benefit from the advantages that real estate SICAFs may provide in terms of compliance with their home country investment rules, as compared with REIFs, which are set up in contractual form. In other cases, real estate SICAFs are preferred by foreign investors for their corporate form and governance, which, for example, implies that they have legal personality and the governance tools typical of joint-stock companies can be used.

Moreover, following SICAFs' introduction into Italian legislation, investors preferred mono-compartment vehicles, because the applicable regulatory framework was clearer. However, the market is now also experiencing an uptake in multi-compartment SICAFs,138 with the set-up of these structures being preferred for recent investments made by large foreign investors. However, at present, expansion in the use of multi-compartment SICAFs has been limited by a lack of clarity from the competent authorities on regulatory and tax issues.

Finally, it is worth mentioning that, in the past few years, the Italian real estate market has seen an increasing number of transactions carried out through real estate SPVs and parallel SPVs (ReOCo and LeaseCo), in the context of the securitisation of receivables with underlying real estate assets. Indeed, such vehicles are characterised by a lighter organisational structure than REIFs and SICAFs (e.g., an authorised fund manager is not required) and the range of investors (noteholders) that may benefit from a tax exemption139 in relation to the proceeds distributed is wider than for REIFs and SICAFs.

ii Covid-19 measures affecting the Italian real estate market

The Italian real estate market has been severely impacted by the covid-19 emergency, with the government adopting several measures to deal with this crisis and mitigate the impact on the economy in line with those suggested at OECD level.140

Several measures were approved during 2020, and the endurance of the pandemic emergency resulted in their extension to 2021.

After its introduction, the tax credit was extended to October, November and December 2020 in favour of specific real estate sectors (e.g., hotel, restaurants, theatres)141 and up to April 2021 for touristic agencies.142 The possibility that the tax credit may be further extended is under discussion.

Moreover, with respect to the hotel industry, an option has been introduced for a 'tax-free' revaluation for legal and tax purposes of real estate assets owned, leased or used by entities carrying out hotel and thermal activities during the fiscal years 2020 and 2021.143 In this respect, a new authentic interpretation rule sets out that the revaluation applies to subjects operating in hotel and thermal sectors in relation to properties leased under a lease agreement or a lease of going concern.144 The increased value of real estate assets is relevant both for the depreciation (allowing higher depreciations for corporate income taxes purposes) and for the determination of capital gains on disposal (on condition of a four-year lock-up period). The reserve arising from the revaluation would be taxable in the event of distribution, unless a tax of 10 per cent were paid. This measure represents an important boost for the tourism sector, which has been very badly hit by the emergency.

A second revaluation regime was introduced in August 2020, which allows for the revaluation of single real estate assets resulting from financial statements ongoing as of December 2019. The revaluation must be carried out in the financial statement of the year beginning 31 December 2020,145 and the higher value attributed to real estate assets deriving from the revaluation may also be recognised for tax purposes by applying a 3 per cent substitute tax in lieu of ordinary corporate income taxes (IRES and IRAP) starting from 2021 (e.g., for depreciation purposes). In addition, as part of the revaluation regime, a lock-up period of four years has been provided for the determination of capital gains on disposal of assets.

With respect to local taxes, an exemption has been introduced from the payment of the single municipal tax (IMU), due for 2020 and in relation to the first instalment of 2021 for real estate assets and related appurtenances used in connection with tourism and entertainment business activity.146 For certain real estate assets (i.e., hotels, B&B, clubs), the allowance applies under the condition that the taxable person subject to IMU is also the entity or individual carrying out the business activity therein. In addition, the assessment activities of the Revenue Agency have been suspended until 31 May 2020, postponing the issue of tax assessment notices due between 1 March 2021 and 28 February 2022.147 It is therefore currently very difficult to predict what the Revenue Agency's priorities will be in the immediate future.

In any case, the government is expected to adopt additional measures specifically aimed at the real estate sector, which, although not the government's main concern in managing the country's exit from the emergency caused by the pandemic, is recognised as being undoubtedly a central pillar of the relaunch of the Italian economy.

Footnotes

1 Giuseppe Andrea Giannantonio is a partner, Gabriele Paladini is a counsel and Giulia Bighignoli is a senior associate at Chiomenti. The authors would like to thank Giovanni Scavone and Francesco Castro (also at Chiomenti) for their contributions to this chapter.

2 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No. 1060/2009 and (EU) No. 1095/2010, implemented in Italy by Legislative Decree No. 44 of 4 March 2014 (Legislative Decree No. 44/2014).

3 Pursuant to Article 115 of Presidential Decree No. 917 of 22 December 1986 (the Income Tax Code); the Income Tax Code's implementing rules are set out by the Ministerial Decree of 23 April 2004.

4 Pursuant to Article 115(1), (2) of the Income Tax Code and Article 1 of the Ministerial Decree of 23 April 2004, the tax transparency regime is eligible if the company is participated in solely by shareholders that qualify as companies or as non-resident entities, provided that profits distributed to them are not subject to Italian withholding tax and each holds a shareholding between 10 and 50 per cent.

5 Pursuant to Article 102(2) of the Income Tax Code and the Ministerial Decree of 12 December 1988, the maximum depreciation rate of real estate properties relevant for IRES purposes is generally equal to 3 per cent.

6 Pursuant to Article 14(1) of the IMU Law, as amended. IMU on non-residential properties is deductible for 50 per cent of the amount with respect to fiscal year 2019; 60 per cent of the amount with respect to fiscal years 2020 and 2021; and 100 per cent of the amount for fiscal years from 2022 onwards.

7 Article 1(36) of Law No. 244 of 24 December 2007.

8 Article 30 of Law No. 724 of 23 December 1994.

9 Making reference to partnerships and companies that have elected the tax transparency regime under Article 115 of the Income Tax Code.

10 Article 6(3) of the Income Tax Code.

11 Article 56(1) of the Income Tax Code.

12 Articles 5(1) and 115(1) of the Income Tax Code.

13 Article 10(1)(8 ter) of Presidential Decree No. 633 of 26 October 1972 (the VAT Law).

14 Article 17(6)(a bis) of the VAT Law.

15 Article 40 of Presidential Decree No. 131 of 26 April 1986 (the Registration Tax Law).

16 Article 1 bis of the Tariff attached to Legislative Decree No. 347 of 31 October 1990 (Legislative Decree No. 347/1990) and Article 10(1) of Legislative Decree No. 347/1990.

17 Joined cases C-478/19 and C-479/19 (UBS Real Estate KmbH).

18 If the justification is preventing a systemic risk in the real estate market, and provided that there is no 'direct' discrimination based on factors such as whether the investment funds are managed in Italy or governed by Italian law.

19 Article 10(1)(8 ter) of the VAT Law.

20 Article 17(6)(a bis) of the VAT Law.

21 In the case of 'first home' reliefs, 4 per cent VAT applies (No. 21 Table Part II attached to the VAT Law).

22 Article 13(1) of the VAT Law.

23 Article 40 of the Registration Tax Law and Article 1(1) of the Tariff, Part I attached to the Registration Tax Law.

24 Article 10(3) of IMU Law.

25 Article 40 of the Registration Tax Law; note at Article 1 of the Tariff attached to Legislative Decree No. 347/1990; Article 10(2) of Legislative Decree No. 347/1990.

26 Article 37(4 bis) of the Income Tax Code and Revenue Agency Circular Letter No. 263 of 12 November 1998, Paragraph 2.

27 Article 12(2) of Legislative Decree No. 446 of 15 December 1997.

28 Articles 23(1)(f) and 67(1)(b) of the Income Tax Code.

29 Italian Supreme Court, Decisions Nos. 8815 and 8820 of 27 November 1987.

30 Article 7 ter of the VAT Law.

31 The €200 registration tax applies in any case where the purchase deed is in the form of a notarial deed or a private deed authenticated by a notary (Article 11 of the Tariff, Part I attached to the Registration Tax Law) or, under certain conditions, if the purchase deed is in the form of a non-authenticated private deed (Article 2 of the Tariff, Part II attached to the Registration Tax Law).

32 Article 2 of the Registration Tax Law.

33 Article 1(491–500) of Law No. 228 of 24 December 2012.

34 Article 1(494) of Law No. 228 of 24 December 2012 and Articles 5 and 19 of the Ministerial Decree of 21 February 2013.

35 Article 19 of the Ministerial Decree of 21 February 2013 and the Implementing Rules of the Revenue Agency of 18 July 2013, Paragraph 3.2.

36 Article 27(3) of Presidential Decree No. 600 of 29 September 1973 (Decree No. 600/73).

37 Article 27(3 ter) of Decree No. 600/73.

38 Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, implemented in Italy by Article 27 bis of Decree No. 600/73.

39 Revenue Agency Circular Letter No. 6/E of 30 March 2016.

40 Court of Justice Decision dated 8 March 2017, Case C-448/15 – Wereldhave; Court of Justice decision dated 26 February 2019, in the joined cases C-116/16 and C-117/16 – T Denmark.

41 Italian Supreme Court, Decision No. 32255 of 13 December 2018, Decision No. 14527 of 28 May 2019, Decision No. 25490 of 10 October 2019.

42 Article 1(631-633) of Law No. 178 of 30 December 2020.

43 In particular, in the case of a partner that is a non-resident entity, that income is considered Italian-source income and is subject to 24 per cent IRES (Articles 5(1) and 115(1) of the Income Tax Code). Conversely, no withholding tax is applied on profits when distributed.

44 Article 5(2) of Legislative Decree No. 461 of 21 November 1997.

45 Article 5(5) of Legislative Decree No. 461 of 21 November 1997 and Article 6(1) of Legislative Decree No. 239 of 1 April 1996.

46 States included in the list provided in the Ministerial Decree of 4 September 1996, as amended.

47 Article 13(5) of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention on Income and on Capital (the OECD Model Tax Convention).

48 Article 13(4) of the OECD Model Tax Convention.

49 Article 1(1)(k) of Consolidated Law on Finance.

50 The two-thirds investment requirement should be reached within 24 months of the commencement of activity by the REIF (Article 2 of Ministerial Decree No. 30 of 5 March 2015).

51 The management company qualifies as a fully authorised alternative investment fund manager (AIFM) under the AIFMD as implemented in Italy.

52 Article 1 bis of the Tariff attached to Legislative Decree No. 347/1990 and Article 10 of Legislative Decree No. 347/1990 and Article 35(10 ter) of Law Decree No. 223 of 4 July 2006, converted into Law No. 248 of 4 August 2006. The ordinary rates of mortgage and cadastral tax are 3 per cent and 1 per cent respectively.

53 Article 8(1 bis) of Law Decree No. 351 of 25 September 2001, converted into Law No. 410 of 23 November 2001.

54 Revenue Agency Circular Letter No. 22/E of 19 June 2006, Paragraph 2.2.

55 Article 1(137)(140) of Law No. 296 of 27 December 2006.

56 Article 73(1)(c) of the Income Tax Code. In particular, pursuant to Article 73(3) of the Income Tax Code, an OICR established in Italy is a person resident in Italy for income tax purposes.

57 Article 6 of Law Decree No. 351 of 25 September 2001.

58 Article 32(3) of Law Decree No. 78 of 31 May 2010.

59 Article 9 of Legislative Decree No. 44/2014.

60 Article 16(1 bis)(b) of Legislative Decree No. 446 of 15 December 1997.

61 Public Answer No. 235/2019.

62 Article 8 of Law Decree No. 351 of 25 September 2001.

63 Public Answer No. 124/2020.

64 Revenue Agency, in unpublished tax rulings and in public tax ruling No. 199/2019.

65 Public Answer No. 74/2020.

66 Public Answer No. 74/2020.

67 Article 9 of Legislative Decree No. 44/2014.

68 Article 6 of Law Decree No. 351 of 25 September 2001.

69 Revenue Agency Circular Letter No. 47/E of 8 August 2003, Paragraph 3.3.

70 Article 1 of Legislative Decree No. 239 of 1 April 1996.

71 Article 26, Paragraph 5 of Presidential Decree No. 600 of 29 September 1973.

72 Public Answer No. 98/2019.

73 Article 7(1) of Law Decree No. 351 of 25 September 2001 and Article 9 of Legislative Decree No. 44/2014.

74 Article 32(3 bis) of Law Decree No. 78 of 31 May 2010.

75 Article 5 of Legislative Decree No. 461 of 21 November 1997.

76 Revenue Agency Circular Letter No. 2/E of 15 February 2012, Paragraphs 3.1.2 and 4.1.2.

77 Article 7(3 bis) of Law Decree No. 351 of 25 September 2001.

78 Revenue Agency Circular Letters Nos. 11/E of 9 March 2011 and 2/E of 15 February 2012, Paragraph 4.3.

79 Article 23(1)(f) of the Income Tax Code.

80 Article 5 of Legislative Decree No. 461 of 21 November 1997.

81 Revenue Agency Circular Letter No. 2/E of 15 February 2012, Paragraph 4.3.

82 Article 5(5) of Legislative Decree No. 461 of 21 November 1997.

83 Article 6(1) of Legislative Decree No. 239 of 1 April 1996.

84 Revenue Agency Circular Letter No. 2/E/2012, Resolution No. 54/E/2013, Guidelines 16 December 2011.

85 Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS).

86 Resolution No. 78/E/2017.

87 Public Answers Nos. 43/2018, 44/2018, 147/2018 and 430/2019.

89 Public Answers Nos. 43/2018, 44/2018 and 147/2018.

90 Public Answer No. 345/2019.

91 Article 1(141 bis) of Law No. 296 of 27 December 2006, as amended by Article 12 of Law Decree No. 135 of 25 September 2009, converted into Law No. 166 of 20 November 2009.

92 Article 1(119) of Law No. 296 of 27 December 2006.

93 Article 1(119 bis) of Law No. 296 of 27 December 2006.

94 Article 1(120) of Law No. 296 of 27 December 2006 and Article 3 of Ministerial Decree No. 174 of 7 September.

95 Article 1(125) of Law No. 296 of 27 December 2006.

96 Revenue Agency Circular Letter No. 8/E/2008.

97 Article 1(121) of Law No. 296 of 27 December 2006 and Article 6 of Ministerial Decree No. 174 of 7 September.

98 Article 1(126 and 130) of Law No. 296 of 27 December 2006.

99 Article 1(131) of Law No. 296 of 27 December 2006.

100 Article 10(8) of VAT Law.

101 Article 1 bis of the Tariff attached to Legislative Decree No. 347/1990 and Article 10 of Legislative Decree No. 347/1990 and Article 35(10 ter), of Law Decree No. 223 of 4 July 2006, converted into Law No. 248 of 4 August 2006. Ordinary rates of mortgage and cadastral tax are 3 and 1 per cent respectively.

102 Article 1(138) of Law No. 296 of 27 December 2006.

103 Article 1(123) of Law No. 296 of 27 December 2006.

104 Article 1(123 bis) of Law No. 296 of 27 December 2006.

105 Revenue Agency Circular Letter No. 32/E/2015.

106 Article 1(134) of Law No. 296 of 27 December 2006.

107 Article 1(122) of Law No. 296 of 27 December 2006.

108 Article 1(124) of Law No. 296 of 27 December 2006.

109 Revenue Agency Circular Letter No. 8/E/2008 (Paragraphs 1.5 and 4.1).

110 Article 7.2(2) of Law No. 130.

111 Article 7.2(1) of Law No. 130.

112 Article 7.1(3) and (8) of Law No. 130.

113 Public Answer No. 132/2021.

114 Public Answer No. 18/2019.

115 Public Answer No. 132/2021.

116 Article 7.1(5) of Law No. 130.

117 Article 7.1(4) of Law No. 130.

118 Revenue Agency Circular Letter No. 8/E/2003.

119 Article 7.1(4 bis) of Law No. 130.

120 Article 7.1(4 quater) of Law No. 130.

121 Note II bis of Article 1 of the Tariff, Part I, attached to Presidential Decree No. 131 of 26 April 1986; Article 7.1(4 quinquies) of Law No. 130.

122 Article 7.1(4 ter) of Law No. 130.

123 Respectively Paragraphs 1 and 4, Article 13 of the OECD Model Tax Convention.

124 See the MLI Matching Database provided by the OECD.

125 France deposited the ratification instrument of the MLI on 26 September 2018.

126 See footnote 2.

127 Article 162(2)(f bis) of the Income Tax Code.

128 Supreme Court, 27 November 1987, Nos. 8815 and 8820; Resolution of the Ministry of Finance No. 460196 of 13 December 1989.

129 Revenue Agency Circular Letter No. 21/E of 10 July 2014.

130 Further specifications on the criteria to verify whether a cross-border arrangement qualifies as reportable under DAC 6 rules have been rendered by the Decree of Ministry of Economy and Finance of 17 November 2020.

131 The hallmarks may be summarised as follows: hallmarks related to arrangements involving confidentiality obligations, arrangements where the intermediary is entitled to receive a fee determined by reference to the tax advantage obtained by the taxpayer, arrangements that have a substantially standardised documentation and/or structure that is available to a taxpayer without customization; hallmarks related to arrangements involving the acquisition of loss-making companies, arrangements that have the effect of converting an item of income into other items that are either taxed at a lower rate or exempt from tax; hallmarks related to cross-border transactions; hallmarks concerning automatic exchange of information and beneficial ownership; and hallmarks concerning transfer pricing.

132 Revenue Agency Circular Letter No. 2/E of 10 February 2021.

133 Revenue Agency Circular Letter No. 8/E of 6 February 2003, Resolution No. 222/E of 5 December 2003 and Resolution No. 77/E of 4 August 2010.

134 Article 41(1) of the Consolidated Law on Finance, as amended by Article 4(6) of Legislative Decree No. 44/2014.

135 Articles 32 and 33 of the AIFMD.

136 Article 14(2) of Legislative Decree No. 44/2014.

137 Legislative Decree No. 44/2014.

138 From a regulatory perspective, this refers to the establishment of compartments of a SICAF, which are separate and distinct from each other.

139 Article 6 of Legislative Decree No. 239 of 1 April 1996.

140 See OECD, 'Tax and Fiscal Policy in Response to the Coronavirus Crisis: Strengthening Confidence and Resilience' report published on 15 April 2020. Based on OECD outcomes, the outbreak of the covid-19 emergency in OECD and third countries has led to an economic decline of generally 25–33 per cent, with estimated decreases of 2 per cent for each month of containment.

141 Articles 8 and 8 bis of Law Decree No. 137 of 28 October 2020.

142 Article 1, Paragraph 602 of Law No. 178 of 30 December 2020 (Budget Law 2021).

143 Article 6 bis of Law Decree No. 23 of 8 April 2020, as converted into Law No. 40 of 5 June 2020 (the 'Liquidity Decree').

144 Article 5 bis of Law Decree No. 41of 22 March 2021 as converted into Law No. 69 of 21 May 2021.

145 Article 110 of Law Decree No. 104 of 14 August 2020, converted into Law No. 126 of 13 October 2020.

146 Article 177 of Law Decree No. 34 of 19 May 2020 (the 'Relaunch Decree'), Article 78 of Law Decree No. 104 of 14 August 2020, Article 9 and 9 bis of Law Decree No. 137 of 28 October 2020 (the Ristori Decree) and, lastly, Article 1, Paragraphs 599–604 of Law No. 178 of 30 December 2021 (the 2021 Budget Law).

147 Article 157 of the Relaunch Decree.

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