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Tax Pills

EU-Anti-Tax Avoidance Directive, ATAD, and Foreign Subsidiaries (Cfc), available from today the Decision of the Director of the Revenue Agency and the Circular letter with clarifications

immagine generica illustrativa

The full text of the Circular n. 18/E, which illustrates the new rules relating to Controlled Foreign Companies (Cfc) in accordance to the implementation of EU-ATAD regulation, and the Decision of the Director of the Agency setting the new criteria for determining in a simplified manner the requirement of the effective level of taxation indicated in Article 167, paragraph 4, letter a of the Tuir (effective taxation of the profit lower than 50 per cent of the Italian one), are now available on the Revenue Agency official web site,, in the two sections reserved to Decisions and Circular letters on line publication.
Both documents were integrated following the numerous contributions and proposals received during the public consultation launched last July 2021.

The purpose of ATAD - The Controlled foreign company rule (Articles 7 and 8 of the ATAD) attributes the income of a low-taxed controlled subsidiary or a permanent establishment (“PE”) to its parent company or head office. The parent company or head office becomes taxable on this attributed income in the State where it is resident if the actual corporate tax paid by the controlled entity/PE on its income is lower than the difference between the corporate tax that would have been paid on the same profits in the Member State of the domestic taxpayer/parent company and the actual corporate tax paid by the entity/PE in the source state. Thereby, the CFC rules in the ATAD aim to discourage multinational companies from shifting profits from their parent company in high tax country in subsidiaries in low or no tax countries to reduce the group’s tax liability.

The contents of the Circular - The Circular provides definitive clarifications on the Cfc regulations currently in force following the changes introduced by Legislative Decree no.142/2018 or ATAD Decree. Particularly, the document focuses on the subjective and objective requirements for its application, on the methods of determining the (effective) foreign tax level for the purpose of comparison with the (virtual) Italian one. In addition, the Circular provides information on the safe harbor rules which allow to not apply the Cfc discipline, on the determination and taxation of the income of the controlled entity, as well as on the discipline related to extraordinary transactions.

The Director Decision - The discipline introduced by the ATAD Decree provides for the identification of new criteria to verify, with simplified procedures, the correctness of the actual foreign taxation compared to the virtual domestic one, to be carried out through a Decision of the Director of the Revenue Agency. Therefore, today’s Decision takes into account the changes brought to the Cfc regulations and updates the indications contained in the previous Act, which is thus replaced.

The two documents in detail - In particular, with the Circular letter published today, the new definitions needed to apply the regulations have been fully clarified. At the same time, are listed the foreign taxes to be considered for the purpose of determining the effective foreign taxation and the Italian taxes to be considered for the purposes of virtual internal taxation. Other changes contained in the Decision include the drawing of the criteria for determining effective foreign taxation and internal virtual taxation.

Stefano Latini