Under Legislative Decree No. 239 of April 1 1996, payments of interest and any other proceeds from bonds issued by banks or companies whose shares are listed on Italian regulated markets, are not subject to withholding or deduction. Under the Decree, payments are made to a legal entity resident in Italy (with certain exclusions) or to non-Italian-resident legal entities/individuals.
To ensure gross payment, under the Decree, investors are required:
- to be beneficial owners of payments of interest or other proceeds;
- to deposit bonds with a bank, a SIM, a non-resident operator of a clearing system, a permanent establishment of a bank or non-resident SIM, having appointed as its agent, under the Decree, a resident bank or SIM, or a permanent establishment of a non-resident bank or SIM, which is in computer contact with the Ministry of Finance; and
- to file with the depositary, in the event of non-Italian residents being holders of bonds, before or at the same time as the deposit of bonds, a form bearing, among other things, a statement of the competent financial authority of the actual beneficiary entitled to payment (with proof of a double tax treaty and identification data).
Legislative Decree No. 461 of November 21 1997 recently enacted a general reform of capital gains tax treatment and introduced, among other things, a slight but significant amendment to Section 1 of the Decree specifying exemption from withholding does not apply to bonds and similar instruments which, at the time of issue, are admitted to dealings exclusively on foreign regulated markets. The target of the provision is to limit the rush of Italian issuers to exclusive listings in Luxembourg and encourage listing on the Italian official bond market.
The amendment will be effective for interest and other proceeds payable after July 1 1998 (the date of entry into force of the new regime) and even for bonds issued before then. Many hope this was an oversight by the legislator because of the rush for approval of the capital gains tax treatment reform and that the restriction will be cured before July 1 1998 with an amending decree. In the meantime, it will be interesting to see if the Italian listing procedures become easier and quicker, and if the government is forced to amend the restrictive measures of the recent reform.