Luca Galliani (LED Taxand Senior Manager) takes a closer look at recent amendments to Italy’s PEX regime in case of foreign subsidiaries, and considers why taxpayers may need further clarity.

Article 5 of the Legislative Decree November 29 2018, No. 142 (Article 5) – that has made amendments to the tax regime of dividends and capital gains derived from participations in foreign entities – was introduced with the purpose of aligning these provisions with Italy’s new controlled foreign corporation (CFC) regime, as implemented following the ATAD 1 and ATAD 2 Directives.

The repeal of the definition of privileged tax regime in the context of the CFC regime as well as the introduction of a new concept of ‘control’ as provided by Article 7 of the ATAD 1 Directive had a significant impact on the taxation of cross-border dividends and capital gains.

However, following the amendments, including the provision of new criteria for qualifying a foreign state or territory as blacklisted, several doubts have arisen among the scholars, in particular with respect to the taxation of dividends and capital gains derived from participations held by taxpayers before 2019, namely the year in which Article 5 entered into force.

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