Through Law no. 96, of 18 June 2015, in effect since 1 January 2016, the Italian government finally ratified the agreement between Italy and the Hong Kong Special Administrative Region, with the declared aim of avoiding double taxation in the field of income taxes and of preventing tax evasion.
Besides the different aspects included in the agreement, the effects achieved with the entry into force of the above mentioned Convention are important; above all, the partial removal of Hong Kong from the Italian black lists for Controlled Foreign Companies (Ministerial Decree of 21 November 2001) and for the non-deductibility of costs (Ministerial Decree of 23 January 2002).
- “Black list” Regulation and effects
Black lists of Countries which have a privileged tax regime involve significant tax consequences for companies who trade with some of these countries. These consequences are both substantial (taxation of dividends, deductibility of costs, penalties) and formal (fiscal monitoring, duty of information).
In order to verify if a country falls within the so-called “Black list”, all the lists issued over the years by the various implementing decrees will necessarily have to be considered (decrees that have also been amended several times). Indeed, even though these lists have an independent legal status in their respective fields of application, they have in any case to be considered in their entirety:
- Economic operators with headquarters, residence or domicile in black list Countries (Ministerial Decree 4 May 1999)
- States or territories with a privileged tax regime which makes the C.F.C. legislation applicable (Ministerial Decree of 21 November 2001);
- Limited deductibility of costs resulting from transactions with operators residing in black list countries (Ministerial Decree January 23, 2002).
There are various applicative implications, costs, fulfillments and substantial consequences for Italians companies who have commercial relationships with a country in the above lists:
- Dividend taxation – the decree “growth and internationalization of enterprises” (Legislative Decree, 14 September 2015, no. 147) has once again defined the scope of application of the rules in question, which provides for the full taxability of dividends originating from those Countries, unlike the ordinary regime where one is allowed a partial exemption of profits (the so-called PEX).
- Deductibility of costs – up to the tax period ending on 31 December 2014, a full non-deductibility of all the expenses and other negative components resulting from transactions occurred with black list enterprises was in force. Such stringent regime has, however, undergone two major modifications, which have initially allowed, for the year 2015, a deduction of costs within the limits of the normal value, and have then led to the ordinary regime of full deductibility for the current year (2016).
- Transaction reporting with Black List Countries – as provided by Ministerial Decree of August 5, 2010, VAT taxable persons shall electronically report annually to Agenzia delle Entrate (the Italian Revenue Agency) ‒pursuant to the terms and conditions defined by special decree of the Italian Ministry of Economics and Finance‒ all the sales of goods and services with an annual total amount exceeding EUR 10,000.00, towards businesses with headquarters, residence or domicile in countries mentioned in Ministerial Decree of May 4, 1999, and Ministerial Decree of November 21, 2001.
- Penalty regime (compilation of the “quadro RW” and “ravvedimento operoso” (voluntary correction) – further evidence of the burdensome regulation can be seen in the penalty treatment. The penalty imposed for failure to complete the quadro RW, namely that devoted to the annual monitoring of the financial activities and equity investments held abroad by residents in Italy, is doubled. The same regime is found, also, in the institution known as “ravvedimento operoso“, i.e. the possibility for taxpayers to regularize their own tax situation through a supplementary statement submitted after the ordinary filing term.
- The – partial – cancellation of Hong Kong from the Italian black lists
The removal of Hong Kong from the Italian black lists is, as mentioned, only partial (see the two Ministerial Decrees of 18 November 2015). Hong Kong has, in fact, remained on the list referred to in Ministerial Decree of May 4, 1999, in connection to the obligation of communication of transactions with entities located in tax havens provided by Ministerial Decree of August 5, 2010 (implementing the Decree Law 25 March 2010, n. 40). As a result, in 2016 all persons subject to VAT (natural persons and legal entities) that trade in goods and services with persons in Hong Kong are required to notify the Italian Revenue Agency of the transactions, provided that the total annual amount exceeds EUR 10,000.00.
Despite the described significant changes in perspective, some doubts still remain to be clarified about whether Hong Kong can definitely be considered a white list country, given that to date, to our knowledge, its name has not yet found the right place into the list mentioned in Ministerial Decree of September 4, 1996 (the so-called “white list”), containing the list of countries with which an adequate exchange of information under the agreements is feasible to avoid double taxation on income in force with the Italian Republic. However, the ratification of the Convention against double taxation, quoted in the introduction of this article, and the activation of an appropriate information exchange allow sufficient confidence regarding the forthcoming exit of Hong Kong also from the list referred to in Ministerial Decree of May 4, 1999, and its simultaneous inclusion in the Italian white list, in order to limit the requirements for those who work with foreign countries, from where major investments can also be drawn.
(Luigi Zunarelli – Zunarelli’s Shanghai Office; Simone Ariatti – of counsel of Studio Legale e Tributario Del Federico e Associati -Bologna, Pescara, Roma-).
