The change became necessary due to the implementation of the so-called Global Minimum Tax, in line with the provisions developed by the OECD in the context of Pillar 2, according to which, for companies belonging to large national or multinational groups falling under the so-called ‘GloBe Rules’, an effective taxation of at least 15% must be guaranteed in all jurisdictions in which each entity belonging to the group is present.
The objective of the delegated legislator is to simplify the calculation of the effective taxation of the CFC by identifying in the threshold of 15% the limit below which the non-resident company will be considered ‘black’ for the purposes of the application of the CFC rules. For the calculation of the ETR it will be permitted, under certain conditions, to use the accounting information of the foreign controlled entity.
In particular, Article 3 of the draft decree, under the heading ‘simplification of the discipline of controlled foreign companies‘, provides for the amendment of the current wording of Article 167, paragraph 4, letter a) of the Italian consolidated Tax Act, stipulating that the discipline on CFCs will apply if the controlled foreign companies ‘are subject to effective taxation of less than 15%’ to be calculated according to simplified methods (current and deferred taxes as numerator, pre-tax profit as denominator).
As a result of the amendment on the new calculation of the effective tax rate, it will no longer be necessary to calculate the virtual taxation, i.e., the level of taxation to which the foreign entity would have been subject had it been resident in Italy, with respect to foreign subsidiaries whose financial statements are audited and certified. This simplified calculation method – as envisaged in the first drafts circulated – would have risked introducing penalising effects, for example, for foreign holding companies with an effective taxation below 15% due to local domestic rules exempting dividends or capital gains on participations.
The final version of the legislative decree, accepting the opinion of the parliamentary committees and overcoming the aforementioned critical issue, appropriately provides for the possibility, in the event of effective taxation, calculated according to the simplified criteria, of less than 15%, to verify that it is nevertheless higher than half of the domestic virtual tax rate.
The draft decree also provides for the introduction of paragraph 4-bis within Article 167 of the Italian consolidated Tax Act, according to which, for the calculation of the effective tax rate at 15%, the equivalent domestic minimum tax set forth in Annex A of the decree implementing Directive (EU) 2022/2523, if any, paid by the foreign subsidiary will also be taken into account.
The reference is precisely to the aforementioned Global Minimum Tax, which, since it applies, as mentioned, on a jurisdictional basis, to all subsidiaries located in the same State, for the purposes of allocating the share of the tax to the individual foreign subsidiary, it is provided that such tax will be calculated as the product of the same national minimum tax and the ratio of the excess profits to the enterprises and entities of the group subject to the equivalent national minimum tax calculated on a unitary basis with the non-resident controlled entity.
Finally, the draft legislative decree provides for the introduction of a new paragraph 4-ter, by virtue of which resident parent companies are allowed to avoid the complexity of calculating the ETR of their subsidiaries or permanent establishments abroad by opting for the payment of a substitute corporate tax equal to 15% of the net accounting profit for the year calculated without taking into account the taxes paid by the foreign subsidiary, the write-down of assets and the provisions for risks. The option for the substitute tax will last for three financial years of the parent company and will be irrevocable. At the end of the three-year period, the option will be deemed to be tacitly renewed for a further three years, unless revoked (a specific provision will set forth the procedures for communicating and revoking the option). The optional mechanism will always be recognised, however, provided that the financial statements of the non-resident subsidiaries are audited and certified by professionals certified in the subsidiary’s state of residence and whose findings are used by the parent company’s auditor to express its opinion on its annual or consolidated financial statements.
Our firm’s corporate team will continue to monitor future developments in the discipline, remaining at the disposal of those interested in obtaining further information and specific insights.
