Financial investments: changing tax regimes require care

The taxation of investment and capital gains has a primary division between entities. Individuals are subject to individual income tax (IRPEF), which is applied by an outgoing financial intermediary (usually a bank) and exempts the taxpayer from income declaration obligations. Legal entities, such as companies and businesses in general, are liable to pay corporate income tax (Ires), which contributes to the income of the business itself.

The first distinction relates to the taxpayer's place of residence.

Physical persons are considered resident if they spend the majority of the tax period in Italy (183 days), whereas for legal entities residence in''Italy assumes a domicile in the territory throughout the tax period. The essential difference is that in order to be considered non-resident, the entity must have tax residency in the country in which it carries out its labor activity. The issue of company residency is regulated by Article 73 of the Tax Code, which stipulates that holding companies, including foreign companies with direct or indirect participation in Italian companies, are considered residents.

Another important distinction is the separation of capital income and miscellaneous financial income.

This is financial income such as interest, dividends or coupons. Taxation changes in''depending on the nature of the participant or investor, and as already mentioned, for individuals a tax agent in the person of a financial intermediary acts. Legal entities apply a tax deduction to be included in the income tax return. In this case there is no figure of a tax agent.

The more complex taxation is related to various financial incomes, such as gains and losses from transactions, sales or returns on financial investments.

Factually, these are amounts that can also be negative, that is, losses. The issue of profits is also varied. Some are exempt from taxation under Partecipation Exemption (PEX), under which, limited to the sale of shares or interests, the exemption applies in''in the amount of 95% of their total amount, provided that:

• The profits are different from those on which PEX applies and contribute to the income of the business in full.
• Financial assets include, for example, stocks, bonds, current accounts, deposits and government securities.

To summarize, these assets generate:

• Interest and dividends that are subject to personal income tax or corporate income tax, depending on the taxpayer's status.
• Capital gains that may be exempt from taxation under the PEX or taken into account on an income tax return.

Legislative Decree 461/97 focused on various financial gains,''the need to include the income in the investor's income tax return.

Commercial organizations have no choice because their income is included in corporate income. Where there is no tax withholding, the taxpayer is liable''to indicate in the income tax return the accumulated income for the tax period.

To avoid double taxation, i.e. the imposition of similar taxes in two or more countries, it is necessary to refer to international agreements concluded by the Ministry of Economy and Finance (here is an updated list). These agreements allow participating states to exchange information between national competent authorities. The agreements are modeled after the OECD, the Organization for Economic Cooperation and Development. Information on foreign activities may be exchanged:

• At the request of the tax authorities of one state sent to the tax authorities of another state.
• Automatically, by''exchange of information on financial accounts and financial investments.

Italy has approving decrees on the FACTA and DAC2 laws, which determine the discovery and transmission of financial account data.