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2012 Italian tax reform - 20/01/2012


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Taxation of investments made by Luxembourg investment funds in Italian bonds

As detailed in our Operational Tax News dated 30 December 2011, until 31 December 2011, a 12.5% tax rate applies on income deriving from most Italian financial products. The 12.5% rate has been increased to 20% as from 1 January 2012.

With regards to Italian government bonds or bonds issued by listed Italian companies and banks, implementing measures published in the Italian Official Gazette on 16 December 2011 provide that the application of the 12.5% tax rate would be granted in respect of interest accrued as at the date of 31 December 2011.

For any other type of Italian bonds or similar securities, it was initially provided that the new rate of 20% would apply on interest and other income payable as from 1 January 2012 even in respect of interest accrued up to 31 December 2011.

On 29 December 2011, the Italian law maker approved a law decree introducing the application of the 20% withholding tax rate to the following income derived as from 1 January 2012 i.e.:

  • interest and other income from current accounts, bank and postal deposits
  • interest and other income derived from repo agreements signed before 1 January 2012 and having a maturity of less than 12 months and whose underlying assets are bonds issued by Italian banks or companies listed on the Italian Stock Exchange, even if paid in 2012
  • any other type of Italian bonds or similar securities other than Italian government bonds or bonds issued by listed Italian companies and banks

The situation may be summarised as follows:

  Withholding tax on income until 31/12/2011 Income accrued until 31/12/2011 Withholding tax on income as from 01/01/2012
Italian government bonds and assimilated securities 12.5% 12.5% 12.5%
Bonds issued by listed Italian companies and Banks with a maturity of more than 18 months 12.5% 12.5% 20%
Bonds issued by listed Italian companies and banks with a maturity of less than 18 months 27% 27% 20%
Repo agreements signed before 1 January 2012 and having a maturity of less than 12 months and whose underlying assets are bonds issued by Italian Banks or companies listed on the Italian Stock Exchange 12.5% 12.5% 12.5% *
Current accounts, bank and postal deposit 27% 27% 20%
Any other type of Italian bonds or similar securities 12.5% 12.5% 20%

 * 20% WHT rate will apply to Repo agreements entered starting from 1 January 2012.

As mentioned in the Operational Tax News dated 30 December 2011, these new provisions would however not have any material impacts for Luxembourg investment funds which benefit from the domestic exemption granted to institutional investors and would receive a gross interest amount in any case.

Should you have any queries, please do not hesitate to contact us.

We will keep you updated on any future developments.

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