LED Taxand summarizes hereinafter the main tax news regarding Italian real estate for the third quarter of the year 2019.
Case Law – Italian Supreme Court decision no. 12138/2019. Participation exemption: the commercial activity requirement for real estate companies.
The Supreme Court restricts the application of the PEX regime in relation to the sale of real estate companies which outsource the management of shopping malls. The Supreme Court has ruled that, in such cases, in order to meet the commercial activity requirement for PEX purposes, the company shall carry on an effective coordination activity of the outsourced services and therefore the company shall have an internal organisational and operational structure aimed to coordinate the outsourced services. Furthermore, in relation to the contribution of a going concern and the subsequent sale of shares, the Court has ruled that the commercial activity requirement for PEX purposes shall be evaluated considering the activity exercised during the three years preceding the sale by the company receiving the going concern and, if it has operated for less than three years, it shall be considered also the activity exercised by the company which contributed the going concern.
Case Law – European Court of Justice, Judgement 4 September 2019, case C-71/18, Skatteministeriet. For VAT purposes, the transfer of a building to be demolished does not qualify as a sale of building land.
The EU Court of Justice has ruled that the sale of a building, which is fully operational at the time of the transfer, does not qualify as a transfer of a building land subject to VAT, although the parties intended to demolish the building after the transfer. On the contrary, if the building has already been partly demolished before the transfer, the sale qualifies as a transfer of building land subject to VAT (Judgement 19 November 2009, case C-461/08, Don Bosco Onroerend Goed).
Revenue Agency’s guidelines – Reply to Tax ruling 17 July 2019 no. 260. VAT at 10% rate on the procurement agreement for the construction of “Tupini” buildings.
Clarifications on the VAT rate applicable on the construction works of an entire “Tupini” building, consisting of units with different qualifications (i.e. residential, primary house, commercial). The Italian tax authorities clarified that the procurement contract related to the construction of an entire “Tupini” building (i.e. a building whose total floor area includes at least 51% of residential units and no more than 25% of commercial units) is subject to VAT at 10% rate, although the procurement contract provides for different prices for each unit with different qualification (i.e. residential, primary house, commercial).
Revenue Agency’s guidelines – Resolution 12 August 2019 no. 76. Clarifications on the withholding tax exemption on outbound interest payments.
Relevant clarifications on the withholding tax exemption on interest paid by Italian enterprises to EU banks or EU insurance companies or non-resident institutional investors. According to article 26, paragraph 5-bis, Presidential Decree 600/1973, the 26% domestic withholding tax on interest payments does not apply if the following conditions are met: (i) the lender is an EU bank or an EU insurance company or a non-resident institutional investor subject to regulatory oversight and established in a white-list Country; (ii) the lender complies with the regulatory law which reserves lending activity to authorised entities only; (iii) the borrower qualifies as an enterprise; (iv) the loan duration exceeds 18 months. The Resolution at hand provided the following relevant clarifications. With reference to condition (i), a non-resident fund qualifies as non-resident institutional investor if it or its manager is subject to regulatory oversight; in addition, such qualification shall be checked on the lender, without utilising a look-through approach. With reference to condition (ii), for intercompany loans, it is not necessary that the lender complies with the regulatory law which reserves lending activity to authorised entities only. With reference to condition (iii), also a holding company qualifies as an enterprise. With reference to condition (iv), the loan duration exceeding 18 months is not satisfied if the original duration was less than 18 months even if it was subsequently extended to more that 18 months or if the lender has the right to unilaterally withdraw from the agreement before 18 months.
Revenue Agency’s guidelines – Reply to Tax ruling 23 August 2019 no. 340. Substitute tax applicable also if the variable part of the rental fee depends on the tenant’s turnover.
The Italian tax authorities clarified that the variable part of the rental fee does not represent an obstacle to the application of the flat tax regime on lease agreements (cedolare secca). Pursuant to article 3 of Legislative Decree no. 23/2011, the owner of residential buildings (cadastral categories from A1 to A11, excluding A10) or shops (cadastral category C1) can opt for the flat tax regime, according to which the annual rental fee is subject to a 21% substitute tax (which substitutes Individual Income Tax and related surcharges as well as registration tax and stamp duty). Paragraph 11 of the mentioned article provides that if the taxpayer opted for the flat tax regime, the rental fee cannot be updated, even if a specific provision is included in the rental agreement, including the annual variation established by the Italian National Institute of Statistics (ISTAT). In the ruling at hand, the Italian tax authorities clarified that the provision according to which the variable part of the rental fee depends on the tenant’s turnover does not fall within the scope of the mentioned paragraph 11, therefore such a lease agreement can benefit from the flat tax regime.
Revenue Agency’s guidelines – Reply to Tax ruling 26 August 2019 no. 345. Withholding tax exemption on proceeds paid by an Italian real estate fund to a Singapore REIT.
If a non-resident Real Estate Investment Trust (REIT) has the same features of an Italian UCIT, the 26% domestic withholding tax does not apply on the proceeds paid by an Italian real estate fund to such non-resident REIT. According to article 7, paragraph 3, Law Decree 351/2001, no withholding tax applies on the proceeds paid by an Italian real estate fund to a non-resident UCIT established in a white-list Country. The Italian tax authorities clarified that a Singapore REIT can benefit from such withholding tax exemption because: (i) the plurality of investor requirement is met; (ii) the assets are managed in the interest of the investors but autonomously from them; (iii) the investment policy is predetermined; (iv) the REIF manager is established and resident in Singapore, a white-list Country, and it is subject to the regulatory oversight of the Singapore competent authority.
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