Italy

KEY COUNTRY FACTS
System of government:	parliamentary republic
Population:	61.68 million
Currency:	euro (EUR)
FX regime:	free float
GDP:	$2.129 trillion (2014 est)
IGTA member:	yes
FATF member:	yes
Treasury association:	Italian Association of Corporate Treasurers (AITI)
Other professional financial/banking associations:	Italian Banking Association (ABI)

Financial regulatory framework

Bank supervision

The European Central Bank (ECB) has the authority to monitor the financial stability of banks within the eurozone through its Single Supervisory Mechanism (SSM). The ECB has final supervisory authority, with member states’ national supervisory authorities now providing a supporting role. The ECB directly supervises the 120 “most significant” banks within each eurozone member state. Italy’s national supervisory authority for the SSM is the Banca d’Italia which supervises the banking and financial sector within Italy.

Exchange controls

Controls apply to foreign investment from outside the EU in the media, airlines and shipping (where majority ownership is prohibited) and aircraft (where foreign ownership is restricted to one-third).

Taxation framework

Corporate income tax

Residents and non-residents are subject to national corporate income tax (IRES) and local income tax (IRAP). IRES is applied at a current rate of 27.5% to residents’ worldwide income and non-residents’ Italian-sourced income. IRAP, or the regional tax on productive activities, is levied on the net value of the production derived in each Italian region by resident companies. The ordinary tax rate is 3.9%. (Each region may apply an increase up to 1%.) Banks or other financial institutions/companies (including holding companies) and insurance companies are subject to the IRAP at the higher rate of, respectively, 4.65% and 5.90%. Regional authorities may decrease or increase these rates by up to one percentage point. Certain companies operating in the energy sector are subject to a corporate tax surcharge of 6.5% as from 1 January 2014 (for calendar year taxpayers). As the IRAP taxable base is different from the IRES taxable base. For many companies the actual rate tends to be higher. IRAP applies to entrepreneurs, professionals and artists.

Capital gains

Capital gains generally are treated as ordinary income and taxed at the 27.5% corporate income tax rate. Capital gains derived from the sale of participations, however, are 95% exempt from taxation if certain requirements are met.

Taxation of dividends

For domestic entities, there is no withholding tax on dividends. For payments to non-residents, the withholding tax on dividends is equal to:

1.375% on dividends paid to listed EU resident entities;
26% on dividends paid to non-EU resident entities.

These rates may be reduced by tax treaties. A zero-rate withholding tax can be applied by the EU Parent–Subsidiary Directive.

Taxation of interest

Interest payments between resident companies are not generally subject to withholding tax. A withholding tax of 20% is levied on short-, medium- and long-term deposits held by residents in banks. Interest on loans to non-residents bears withholding tax at a rate of 26%. Interest derived from a direct/indirect investment in government bonds and similar securities is subject to withholding tax at a rate of 12.5% (domestic exemptions apply). Under Italy’s implementation of the EU interest and royalties directive, qualifying interest payments are exempt from withholding tax. Deposits and accounts held by non-residents are excluded from taxation in Italy. There is no withholding tax on interest payments from resident to non-resident companies related to a current account, provided that a double tax treaty is in place and the non-resident company is not resident in a tax haven. Careful structuring will be required for cash pooling arrangements to be considered eligible for such treatment. For interest and royalty payments between EU resident group companies, no withholding tax is applicable provided certain conditions are met.

Indirect taxes

VAT is levied on almost all goods and services. The standard rate is 22% with lower rates of 4% and 10% applied to many goods and services.

Thin capitalisation

Interest expenses, net of any interest income, will be deductible up to an amount not exceeding 30% of the earnings before interest, taxes, depreciation and amortisation and rental/leasing fees (EBITDA). The non-deductible excess in a tax year can be carried forward (without limitation of timing) to offset the 30% of the EBITDA of another tax year that is not fully absorbed by the net interest expenses in the same period. In the case of companies included in a fiscal unity (tax consolidation system), the excess net interest expenses of a consolidated company can be offset against the portion of the EBITDA of another consolidated company that has not fully used its own net interest expenses allowance. Under the 30% EBITDA regime, it could be considered that foreign companies meet all the conditions to participate in the tax consolidation system, even though they are not actually a part of any tax group. Thin capitalisation rules are applicable to holding companies. Thin capitalisation rules do not apply to companies carrying out banking, financial and insurance activities. For such companies, interest expenses are only deductible up to 96% of their amount. In addition, Italian tax law provides for the non-deductibility of interest on intra-group loans from a non-EU connected company domiciled in a country which has a “privileged tax system” (ie a tax haven), unless it can be proved that the transactions pass a “business purpose test”. There is a pre-clearance option for taxpayers in respect of the potential application of this restriction.

Transfer pricing

Italy has transfer pricing rules that operate by reference to arm’s-length principles. Accordingly, inter-company transactions must be carried out at an arm’s-length price.

Tax information supplied by Deloitte Touche Tohmatsu and Deloitte Highlight 2015 (see www.deloitte.com).

Banking service provision

There are currently 664 credit institutions operating in Italy including 376 mutual savings and 37 cooperative banks. The country’s two major domestic banks, UniCredit and Intesa Sanpaolo, have a significant presence abroad, acquiring major stakes in a number of banks in Central and East Europe. UniCredit most notably purchased Germany’s HVB Group in 2005 in Europe’s largest ever cross border banking merger. Banking reforms introduced by the Banca d’Italia over the past decade have opened up Italy’s financial sector to foreign investors, and foreign banks are now permitted to acquire domestic banks. Foreign banks are well represented in Italy’s banking sector, with 23 subsidiaries of foreign banks and 80 branches of foreign banks. Most major international cash management banks have a presence in Italy.

Clearing and payment systems

Italy has two clearing systems: TARGET2-Banca d’Italia, the national component of the pan-European TARGET2 RTGS system; and Banca d’Italia Compensazione (BI-COMP), a multilateral net settlement system. BI-COMP is divided into two sub-systems:

Rete Dettaglio, the retail subsystem, an electronic low-value clearing system managed by SIA, the Italian banking and payments system technology and services provider, and the Italian Co-operative Banks’ Central Institute (ICBPI Group); and
Recapiti Locali, the local clearing subsystem, a paper-based clearing system managed by the Banca d’Italia.

TARGET2-Banca d’Italia – processes high-value and urgent credit transfers denominated in euro and settles interbank obligations originating from BI-COMP.

BI-COMP – processes domestic retail payments. Paper-based transactions are cleared via Recapiti Locali and electronic transactions are cleared via Rete Dettaglio. Recapiti Locali is concerned with the clearing of cheques exceeding EUR3,000 and banker’s drafts exceeding EUR12,500. However, in practice, these thresholds may vary as a function of specific agreements between individual participants and the system operator. Recapiti Locali had 41 direct participants at the end of 2013.

Rete Dettaglio is used to clear low-value electronic payments such as credit transfers below EUR500,000, direct debits, ATM and POS transactions, as well as low-value truncated cheques below EUR3,000 and banker’s drafts below EUR12,500. Rete Dettaglio had 85 direct participants at the end of 2013.

Payment instruments

The use of cashless payment methods is widespread in the north and centre of Italy. Southern Italy still relies heavily on cash payments. Payment cards are the most widely used payment instruments in Italy by volume. In terms of value, credit transfers are the dominant payment method. Credit transfers are widely used by companies. Paper-based credit transfers are frequently used by retailers and small companies for collections. The use of direct debits has increased steadily over time. Banks in Italy have implemented SEPA (Single Euro Payments Area) standards for euro-denominated payments. The country’s banks now only issue SEPA-compliant payment cards and also offer pan-European SEPA credit transfers (SCTs) and SEPA direct debits (SDDs). Migration to SEPA payments within the eurozone was finalised in February 2014 for SCTs and SDDs, however two types of low-value legacy paper-based credit transfer, the Mediante Avviso (MAV) issued by the creditor’s bank and the Bollettino Bancario (Freccia) issued by the creditor, were placed out of the scope of SEPA migration and are to remain in use until further notice. Meanwhile, Italy’s domestic legacy preauthorized direct debit (Rapporti Interbancari Diretti – RID) will remain in use until 1 February 2016. Its legacy non-preauthorized direct debit (Ricevuta Bancaria – RIBA) was placed out of the scope of SEPA migration and will remain in use until further notice.

Credit transfers – credit transfers are the leading cashless payment instrument in terms of value. Paper-based credit transfers are more frequently used than their electronic alternative, however the usage of paper-based credit transfers is rapidly declining in favour of electronic transfers.
Cheques – cheques continue to be a popular cashless payment method. However, in recent years they have been increasingly replaced by alternative methods of payment (such as credit transfers) and their corporate usage is limited. Cheques above EUR3,000 are cleared as paper-based items though the Recapiti Locali. Cheques less than EUR3,000 are truncated and cleared electronically by Rete Dettaglio. At present, around 80% of all issued cheques in Italy are processed through the truncation procedure. Cheque payments cleared via Rete Dettaglio are settled on a next-day basis. However, it can take up to one week for the transfer of funds to a recipient’s account.
Direct debits – pre-authorised direct debits are commonly used in urban centres and mainly for regular low-value payments such as utility bills, insurance premia and instalment payments.

Italy’s domestic non-pre-authorised direct debit, RIBA, is an electronic collection instrument. It is classified as a non-pre-authorised direct debit, as the creditor requires the debtor’s agreement to collect their receivables. RIBAs are used by firms to collect trade and other credits.

Card payments – card payments are the most popular cashless payment instrument in Italy and continue to increase in popularity, especially for retail transactions. Debit cards dominate the market due to the commission charges levied on credit cards. Bancomat/PagoBancomat is Italy’s domestic debit card scheme. All payment cards are EMV-compliant. At the end of 2013, there were approximately 45.7 million debit cards and 13.1 million credit cards in circulation in Italy.

There are various e-purse schemes operating in Italy. Most are card-based although the number of internet-based e-purse schemes is on the increase. Approximately 19.8 million cards with an e-money function were in circulation at the end of 2013. Approximately 12.2 million cards with an e-money function are Postepay cards. Postepay stored-value prepaid cards are issued by Italian Post (Poste Italiane).

Cross-border payments

Urgent payments – there are two main settlement alternatives for urgent cross-border payments in euro: TARGET2 and the Euro Banking Association’s EURO1 clearing system.
Non-urgent payments – for non-urgent payments there are two alternatives: through the EBA’s STEP1/STEP2 for euro payments; or through a bank’s own network or alliances via SWIFT. BI-COMP provides its participants with a link to STEP2.

Cash and bank account management

Account availability

Residents are permitted to open and maintain domestic currency (EUR) and foreign currency accounts domestically and abroad. Resident domestic currency accounts can be converted into foreign currency. Non-residents are also permitted to hold accounts in and outside Italy, denominated in either domestic or foreign currency. Non-resident domestic currency accounts can be converted into foreign currency.

Money laundering

Italy has enacted anti-money laundering legislation, including legislation implementing the three EU anti-money laundering directives (Law No 197 of 1991, which has since been amended extensively, most recently by the Legislative Decrees No 56 of 2004; Decrees No 141, 142 and 143 of 2006, Decree No 231 of 2007 as amended by Decree No 151 of 2009 and Decree No 78 of 2010 as amended). The financial intelligence unit (FIU) has also issued related guidance notes. A Financial Action Task Force (FATF) member, Italy observes most of the FATF-49 standards. Italy is also a member of the Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG) with observer jurisdiction status. Italy has established a FIU, housed within the Bank of Italy, which is a member of The Egmont Group.

Information supplied by BCL Burton Copeland (www.bcl.com). Data as at February 2015.

Notional pooling

Notional pooling is not widely practised in Italy for fiscal reasons. Restrictions on banks offsetting debit and credit balances make notional pooling difficult.

Cash concentration

Cash concentration techniques are permitted and widely used in Italy, particularly zero-balancing. Resident and non-resident accounts and different legal entities may participate in a cash concentration structure. Italian companies have on average more bank relationships than their continental European neighbours, due to the fact that the majority of Italian banks are still unable to establish multi-bank cash management arrangements.

Cross-border cash pooling

Only the major banks in Italy offer cross-border pooling. Italy is not often used as a location for cross-border notional pool arrangements. A resident’s account balance can be zero-balanced, target-balanced or threshold-balanced on a daily basis, or for longer periods, to a non-resident corporate account. This allows them to participate in a cross-border cash concentration structure, based in a different location.

Electronic and internet banking

Electronic banking is increasing in popularity and is widely used. CBI (Corporate Banking Interbancario) Consortium electronic banking standards, established by the Italian Banking Association (ABI) and the major Italian banks, are used by approximately 950,000 companies in Italy. Companies can also initiate both domestic and cross-border transactions, upload and download files, and access end-of-day balance and transactions reports. Some Italian banks provide intra-day reporting. The CBI Consortium online platform is mandatory and is available to both retail and corporate users. Internet banking services are more commonly used by retail customers. Mobile banking services are offered by the country's leading banks.

Liquidity management

Short-term investments

Interest can be earned on current accounts.
Time deposits and treasury bills (T-bills) are the most popular short-term investments in Italy.

Time deposits are offered by commercial banks with maturities ranging from overnight to 12 months. Issued by the Ministry of Economy and Finance’s Department of the Treasury, T-bills are favoured by commercial banks and funds and usually have maturities of three, six and 12 months. Bonds are also issued by regional, municipal and provincial authorities.

Offered by commercial banks, certificates of deposit (CDs) are seldom used by companies. Maturities range between three months and five years. The rates of interest applied can be fixed or floating and differ according to the issuing bank.
Offered by many leading Italian businesses outside Italy, commercial paper is rarely used in Italy itself. Cambiale finanziaria with maturities ranging between three and 12 months is the most popular type of commercial paper. The minimum investment amount is EUR50,000.
Some banks offer access to money market funds as part of their suite of short-term investment products. A minimum investment of EUR25,000 is required.
Increasingly popular among companies and institutional investors, most repurchase agreements (repos) have a spot value date, while the remainder have maturities of one week, one month or three months.
Bankers’ acceptances (BAs) have maturities of three to 12 months. BAs are seldom used and involve relatively high fees.