The EU attaction tax regime

The Ministry of Finance has published on its website the draft decree implementing the so-called “EU attraction tax regime”, introduced with the 2010 Budget Law and aimed at attracting investments from EU enterprises in Italy.

Specifically, the provision (Art. 41 of Law Decree no. 78/2010) allows EU-resident companies to set up and begin business activities in Italy, requesting the application of another EU country’s tax law in lieu of the Italian tax regime. Moreover, the draft decree clarifies that EU companies starting up a business activity in Italy can apply either the rules for the determination of taxable basis of the EU country selected and the relevant corporate tax rate.

The regime applies to individuals, companies or any corporate entity treated as a legal entity for tax purposes, to the extent they carry out business activities under the tax legislation of the EU country of residence. As a consequence, fiscally transparent entities, including partnerships, are excluded from the scope of the legislation; this solution should avoid double taxation issues, as well as problems deriving from double tax treaty application.

In order to benefit from the new tax regime, it is necessary that the non-resident corporation setting up the new economy activity in Italy has been resident for at least 24 months in an EU Member State and has made a real business activity in the same country. For the purpose of identifying the residence of the foreign entity – as well as for avoiding issues of dual residence – the new tax regime makes reference to the concept of residence as defined in the double tax treaty between Italy and the EU Member State of the foreign entity.

The draft decree states that the start-up of the business activity in Italy can take place through one of the following routes: the set up a permanent establishment (as provided for by tax treaties), the incorporation of a subsidiary and the transfer of the tax residence. Finally, it should be emphasized that even EU entities who are subsidiaries of Italian persons can in principle have access the favorable tax regime (to the extent they start up a new business activity in Italy).

With reference to the features of the business activity, tat must be a “new” activity and fully executed in Italy, the draft decree excludes certain types.

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