Italy: New withholding tax rates - Ministerial Decree published

Following our Announcements¹, we hereby provide a further update about the new tax rates applicable as of 1 January 2012.

On 16 December 2011, the Ministerial Decree that clarifies the implementation guidelines of Decree 138 was published in “Gazzetta Ufficiale” n. 292.

This Ministerial Decree validates the operational approach of Clearstream Banking² to 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” – see below).

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.

Summary of the new withholding tax rates

Debt Securities:

a. According to the current market interpretation, these bonds, currently subjected to art. 26.1 DPR 600/73, will be subjected to the regime of art. 2 D.Lgs 239/96 (only for bonds issued as of 1 January 2012).
b. With the exception of bonds issued by foreign organisations (for example, BEI, BIRS etc.).

Equities:

a. The 12.5% rate will remain unchanged for capital gains deriving from qualified holdings on which progressive taxation applies and from transactions in Italian government bonds and bonds issued by officially recognised organisations (for example, BEI, BIRS etc.) and foreign government bonds issued by “White List” countries.

Cut-off method

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 not 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. A11116, dated 26 August 2011; A11186, dated 12 December 2011; and A11193, dated 16 December 2012.
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).