Italy: New withholding tax rates - cut-off method

Following our Announcement A11186, dated 12 December 2011, we hereby provide further details of the “cut-off method” that is going to be used in order to reflect the application of the new withholding tax rate of 20% introduced by Legislative Decree 138.

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 income from certain Italian taxable securities.

Although the Italian Tax Authorities have published no operational details to clarify how this change of tax rate is to be applied, Clearstream Banking¹ will, unless official guidance is provided that will impose a different approach, apply the new 20% tax rate on interest by introducing credit and debit movements on customers’ cash accounts, calculated on the balance of each impacted security and uncertified positions as of 31 December 2011 (the “cut-off method”).

Impact on customers

A cut-off on the existing holdings of Italian taxable debt securities impacted by the change of tax rate will be performed after the end of the last business day in 2011 and before the first business day in 2012, ensuring that the tax on outstanding accrued interest and issue discount will be carried over at a rate of 20% tax and no longer at 12.5%.

For each impacted security on an uncertified account, a fictitious sale will be carried out on the global holding at a rate of 12.5%, thereby generating a debit on the customer’s cash account, together with a fictitious purchase on the same global holding at a rate of 20%, thereby generating a credit on that cash account.

Both instructions will be processed with a requested settlement date of 31 December 2011 and a value date for the cash instructions of 2 January 2012. Two MT566 confirmation messages will be generated in order to provide all the details of the cash instructions processed on the customer’s cash account.

Note: In order to facilitate the customer’s reconciliation process, a detailed report offering a full overview with all the details of these adjustments will be available free of charge as of 2 January 2012 upon request to our Tax Help Desk.

Our tax support staff will contact customers proactively to offer further guidance and assistance for the accounts for which they would require these reports and clarifications and to answer any potential questions associated with this tax reform.

Further information

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

or Clearstream Banking Customer Service or your Relationship Officer.

1. Clearstream Banking refers to 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).