Italy: New withholding tax rates - update

Following our Announcement A11116, dated 26 August 2011, we hereby provide details of the new tax rates to be applied as of 1 January 2012 on income derived from Italian securities.

Background

Legislative Decree 138, approved by the Italian Parliament on 13 August 2011 and passed into Law 148 of 14 September 2011 (the “Law”), established a new 20% tax rate on interest paid for certain Italian taxable securities and on dividends paid for ordinary, preferred and savings shares.

Note: The tax rate for Italian government bonds, bonds issued by officially recognised organisations (BEI, BIRS etc.) and foreign government bonds issued by countries included in the “White List” will not be changed but will remain 12.5%.

The application of the new 20% tax rate on interest will be introduced by credit and debit movements on customers’ cash accounts, calculated on the balance of each impacted security as of 31 December 2011 (the “cut-off method”).

Furthermore, although the Law confirms the possibility for EU/EEA¹ legal entities to apply for the 1.375% reduced tax rate on dividends, it does not specify the possibility for EU/EEA pension funds to benefit from the current reduced tax rate of 11%.

As a consequence and until official confirmation is obtained from the Italian Tax Authorities, EU/EEA pension funds will be taxed, as of 1 January 2012, at 20% on dividends with the possibility to apply for a lower rate according to a Double Taxation Treaty signed between their country of residence and Italy.

Impacts

The Italian Tax Authorities have as yet published no guidance to define the operational impacts of the Law or the details of its implementation.

Taking into account that the new tax rate will be effective as of 1 January 2012, Clearstream Banking² is in plan to apply the cut-off method on all impacted securities, unless official guidance is provided in the meantime that will impose a different approach.

Further information

For further information, please contact the Clearstream Banking Tax Help Desk on:

or Clearstream Banking Customer Service or your Relationship Officer.

1. Resident for tax purposes in a European Union member state or in the European Economic Area.
2. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in the Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking, société anonyme, registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).