In the Decree-law for the Restoration of the Public Debt No. 323 dated June 20 1996, as amended on July 11 1996, (the Decree-law), the Italian government introduced the principle that any payment of capital income made from Italy by an Italian company (other than a bank) to a foreign financial institution is subject to a flat rate withholding tax of 15% if made to a foreign bank and to a withholding of 15% on account of taxes if made to foreign branches of Italian banks. The withholding of the 15% will apply to payments made to foreign branches of Italian banks even where the branch has not arranged for its funding from other banks.
Moreover, under the Decree-law proceeds from deposits in guarantee of financings received by Italian entities are also considered to be taxable income and in such a case the withholding tax is set at 20% of the proceeds of the deposit.
Such withholding is applied if the deposit is created in Italy or if the proceeds are paid through an Italian financial intermediary even if the deposit is located outside Italy. In all other cases the depositing entity will be under an obligation to declare the proceeds deriving from the deposit in its tax return.
The withholding will not be applied in the event the recipient of the deposit, being a resident of a country with which Italy has entered into a double tax treaty, certifies that the deposit is not made to fund directly or indirectly a financing in favour of an Italian resident.
The Decree-law has yet to be formally converted into law and may be subject to additional amendments but is already applicable as of the date of its publication in the Official Gazette, June 20.