European and International Tax Law - CFC and Non-Resident Controlled Entities (Italy)

Vocabulary flashcards covering key concepts from the lecture notes on Italian CFC rules, Article 167 ITR, resident vs non-resident entities, tax rate and passive income tests, and related procedures.

Controlled Foreign Company (CFC)

A foreign entity controlled by Italian residents that falls under Italy's CFC provisions (Article 167 ITR) and is subject to imputations of income under the regime.

Article 167 ITR

Italian tax provision governing CFC rules; applies to natural persons and certain resident entities and, via their Italian PE, to those controlling non-resident persons.

Resident partnership (Art. 5)

Income attributed to each quotaholder regardless of actual distribution of income.

Resident company (Art. 73(1)(a))

Resident corporate entities (e.g., Spa, Srl) considered for CFC purposes.

Resident private/public entity (Art. 73(1)(b))

Resident entities not qualifying as a company but carrying on exclusively or mainly an economic activity.

Trust (Art. 73(1)(c))

Resident entity not a company or trust that does not carry on economic activity as its exclusive/main activity.

Not resident companies (Art. 73(1)(d))

Non-resident companies; Article 167 covers Italian PE that controls a non-resident person.

Non-resident controlled entity

Foreign entity controlled, directly or indirectly, by a person referred to in paragraph 1 of Article 167.

Permanent Establishment (PE)

Fixed place of business abroad; used in relation to controlling non-resident entities under the CFC rules.

Article 168-ter arrangements

Regime allowing certain foreign PEs under specific arrangements; relevant to para 3 definitions.

Tax Rate Test

Test comparing the foreign tax rate of a non-resident controlled entity to the Italian domestic tax rate to determine imputation eligibility.

15% threshold

If effective foreign tax is less than 15%, CFC rules may apply to impute income.

Lower than half of Italian rate

If the 15% test is not met (or effective tax is very low), verify the foreign entity is taxed at less than half of what it would be in Italy.

Effective taxation

Ratio of current taxes payable plus deferred taxes to pre-tax profit of the non-resident controlled entity.

Audited financial statements

Annual financial statements of non-resident entities must be audited and certified by professionals in the foreign state.

Collaborative compliance regime

Regime under Article 3 of Legislative Decree no. 128/2015; allows taxpayers to engage with the Revenue Agency for compliance.

Income imputation (para 6)

Imputing a non-resident's income to the Italian residents in proportion to their shareholdings.

Indirect participation (para 6)

If participation is indirect via resident entities or PEs, attribution to those resident entities in proportion to their holdings.

Separate taxation (para 8)

Imputed income is taxed separately at the average rate of the person it is imputed to, not below the ordinary corporate tax rate.

Deduction of foreign taxes (para 9)

From the tax determined under para 8, deduction for foreign taxes paid by the non-resident person, within statutory limits.

Profits distributions (para 10)

Distributions by non-resident controlled persons are not included up to the taxed amount; taxes abroad may be added to the cost base for fiscal purposes.

Notice of assessment (para 11)

Revenue Agency must allow a 90-day period to present evidence if seeking disapplication; report participations if para 4(a)/(b) conditions occur.

Exemption under paragraph 5

Exemption can be proven by a positive ruling; during audits, demonstration may not be required if ruling exists.

Ruling

Positive ruling enabling exemption under the CFC regime; may affect the need to prove conditions during audit.

Non-resident collective investment undertaking

Investment vehicles whose foreign taxes and unit costs interact with the CFC rules and related deductions.