Ruling no. 148/2024: tax exemption for dividends and capital gains realized by foreign funds - requirements

The Italian Tax Authority (“ITA”), with the ruling no. 148/2024 published on July 11, 2024, confirms the application of the exemption regime - introduced by Article 1, paragraph 633, Law No. 178/2020 ("Budget Law 2021") - for Italian source dividends as well as capital gains deriving from the disposal of qualified participations realized by foreign investment funds, as better defined below.

First of all, it should be recalled that the aforementioned Budget Law 2021 introduced the exemption regime for Italian-source income, consisting of dividends and capital gains (or capital losses) deriving from the disposal of qualified participations, obtained by foreign collective investment undertakings (OICR) which:

• are established in an EU or EEA Member State that allows adequate exchange of information; and which
• comply with Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 ("UCITS Directive"), or do not comply with the UCITS Directive, but the manager is subject to supervision in the country in which it is established in accordance with Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 ("AIFM Directive").

The regulatory change had been introduced as of 2021 to remove the unequal treatment between investment funds governed by Italian law and those governed by foreign law, in light of the provisions of Article 63 of the Treaty on the Functioning of the European Union (TFEU) on the free movement of capital, which prohibits all restrictions on the movement of capital between EU Member States and between Member States and third countries, except for specific derogations provided by article 65 TFEU.

The ITA's ruling refers to a specific case of exemption of capital gains, but it provides clarifications which can be also referred to the exemption of dividends and deserve attention for at least two other aspects.

The most interesting one concerns the correct qualification of foreign law investment funds non-compliant with the UCITS Directive that may benefit from the exemption. Indeed, the ruling recalls that in the presence of alternative investment funds ("AIFs") not compliant with the UCITS Directive established under foreign law, it may not be easy to verify the fulfilment of the requirements of comparability with Italian investment funds precisely because they are established under the laws of another State. In this regard, the ITA “considers, as a general rule, that the presence of an AIF in the central public register managed by ESMA [European Securities and Markets Authority, also known as AESFEM] can be regarded, for the purposes of this tax provision, as an element demonstrating the existence of the subjective requirement”.

This conclusion stems from the fact that Article 7(5) of the AIFM Directive states that ESMA must maintain a central public register of all managers authorized under the AIFM Directive, which also contains a list of the AIFs managed and/or marketed in the Union by each manager.

The approach proposed by the ITA is to be welcomed as it provides a clear element of guidance that could reduce the cases in which it would be necessary to apply for a ruling in order to verify the fulfilment of the subjective requirements necessary for the application of the exemption regime.

Lastly, the ITA confirms what it has already stated in previous published rulings, stating that “it is necessary that foreign investment funds meet the above regulatory requirements, whereas there is no requirement as to their legal form and tax status in the countries where they are established”.