- The transparency taxation regime provided for CFCs may also be interrupted by the simple passing of the ETR test and/or the passive income test.
In the approach previously adopted by the Revenue Agency, instead, this possibility was granted only in the case of the demonstration of the exempting circumstance pursuant to Article 167, paragraph 5 of the Italian Tax Consolidated Act (hereinafter TUIR), which requires that the participated company performs an actual economic activity, through the use of personnel, equipment, assets and premises);
- The transfer of the tax residence in Italy of a foreign entity that does not occur in continuity of the CFC regime, may benefit from the step-up of tax values at the time of entry, in application of the entry tax rules.
In the approach previously adopted by the Italian Revenue Agency, the possibility of the step-up of tax values of the foreign CFC entity pursuant to Article 166-bis was not foreseen, since the assets and liabilities of the aforesaid company should have assumed tax values equal to those used for the purposes of the CFC regime.
The clarifications provided are certainly of interest to all existing CFCs where the application requirements have ceased to apply but the actual economic substance of the foreign company cannot be proved. However, especially in such cases, it is necessary to consider not only domestic rules regarding the so-called “esterovestizione” or fictitious interposition, but also the development of the proposed “Shell Entity Directive”, which aims to counter the misuse of companies with low economic substance.
