Article 1, paragraph 1 of Legislative Decree No. 239 of April 1 1996, containing provisions aimed at amending the financial treatment of interest and other capital gains deriving from securities and similar bonds, as amended by Article 12, paragraph 3 of Legislative Decree No. 461 of November 11 1997, will enter into force on July 1 1998. It provides that the 12.5% withholding tax under Article 26, paragraph 1 of the Decree of the President of the Republic No. 600 of September 29 1973 will not be applied to interest and other capital gains deriving from securities and similar bonds issued in Italy by certain entities to the extent that:
- payments are made to a legal entity resident in Italy (with the exception of informal partnerships, de facto partnerships not carrying out commercial activities and professional associations; public and private resident entities, other than companies, not carrying out commercial activities and closed-end investment funds referred to in Law No. 344 of August 14 1993; real estate investment funds referred to in Law No. 86 of January 25 1994; pension funds; and those entities not subject to corporate taxes); or
- payments are made to non-resident legal entities and non-resident individuals (provided they are not resident in tax haven countries as defined in the Ministerial Decree of April 24 1992 but in countries with which Italy has entered into a double taxation treaty which allows Italian authorities to obtain appropriate information in respect of the beneficiary of the payments made from Italy.
The issues which benefit from this regime are, among others, are banks and joint stock companies, the shares of which are listed on Italian controlled markets, or public economic entities transformed into joint stock companies according to law, with the exception of the financial bills of exchange and of securities and similar bonds admitted, at the time of the issue, exclusively to the listing on foreign controlled markets.
To benefit from the exemption from the 12.5% withholding tax, Decree No. 461 required that bonds were to be concurrently listed on the Italian and on foreign controlled markets. Apparently, the amendment introduced by Decree No. 461 was aimed at preventing Italian issuers from listing the bonds issued by them exclusively on foreign controlled markets, and not also on Italian controlled markets. This would have avoided the obligation to present the relevant prospectus to CONSOB, as well as the application of the provisions relating to public offers.
To avoid any burdensome procedures, Decree No. 461 went, before coming into force, through several amendments approved on June 3 1998 by the Council of the Ministries. This ensured that the benefit of the exemption from withholding referred to in Article 1 of Decree No. 239, will also apply to bonds listed on foreign controlled markets only. This means that bonds no longer need to be concurrently listed on the Italian controlled markets as originally contemplated by Decree No. 239.