If you are planning a cross-border transaction, operation or investment you must deal with a multitude of tax issues and a broad array of tax rules, each with different and interdependent, short-term and long-term tax consequences. We help clients plan their cross border investments and activities in the most efficient way from a legal and tax standpoint.
Italy operates a corporate tax system which includes anti inversion rules for foreign entities actively managed and controlled in Italy, participation exemption rules granting a tax exemption for dividends and gains from the sale of stock of domestic and foreign entities; domestic and worldwide consolidation of affiliated corporations; election for fiscal transparency for Italian limited liability companies; limitations on deduction of interest in highly leveraged transactions; anti-abuse rules for income derived from investments and business operations conducted in low-tax jurisdictions or through Italian-owned foreign holding companies; foreign tax credit for foreign taxes paid on foreign income taxable currently in Italy; specific provisions on classification and taxation of foreign trusts and reporting requirements for individuals’ foreign accounts, assets and investments.
Italy taxes residents individuals on worldwide income and nonresident individuals on their Italian-source income under two different tax regimes depending on whether the income is portfolio or passive income (typically subject to a gross basis withholding tax, which is eliminated under internal law for foreign individuals and investments funds organized in a white listed jurisdiction for reduced under tax treaties) or active business income attributable to direct business operations performed through a permanent establishment or local entity in Italy (typically subject to corporate income tax on a net income basis at the rate of 27 percent).
The U.S. operates a worldwide tax system that taxes its citizens, resident alien individuals and domestic corporation (U.S. persons) on wordlwide income and limits their ability to defer U.S. taxation of income earned in foreign countries while granting a tax credit in the U.S. for foreign taxes paid to foreign countries on taxpayer’s foreign source income. The U.S. taxes foreign persons (foreign corporations and nonresident alien individuals) on income deriving from U.S. sources (investments and activities located in the United States). Foreign persons are subject to a gross basis withholding tax on their U.S. source investment income (eliminated or reduced under tax treaties), and to net income tax at ordinary individual or corporate rates on income effectively connected with the conduct of a trade or business in the United States. State and local taxes may also apply depending on where and how a taxpayer does business and if its income producing factors are located in any State of the United States that operates a business income tax.
The use of third country holding, trading or services companies may help achieve substantial tax benefits.
The tax treatment of a particular transaction as provided for under internal tax laws may be significantly altered pursuant to an applicable tax treaty between the host country and the taxpayer’s country of residence.
In such a complicated legal and tax framework your choices, if not properly advised, may have negative effects on the tax results of your ventures. Among the factors to consider when planning your cross border investments are the form of entity you choose for your business and the way in which you want to operate your business in practice; the allocation of functions, risks and assets among the various components of your international business operation; the combination of debt and equity (and variations thereof) you use to fund your international operation; the way in which you structure the intra-group transactions, and the transfer pricing policy you set in place for the inter-company flows of values, services and goods within your global enterprise. They all have both immediate and long-term tax consequences, some direct and obvious and some indirect and hidden. The international context magnifies the importance of careful tax planning because you must comply with complex corporate rules at both domestic and foreign level.
Advising clients on properly planning and structuring their international transactions, business operations and investments is an essential component of our international tax practice.
“We counsel clients on tax-efficient structuring of cross-border inbound and outbound investments, including the optimum use of tax treaties and holding company structures, intra-group financing and financial instruments tax arbitrage, permanent establishment and foreign tax credit issues, tax deferral and entity classifications”.
“We also provide international tax planning services for foreign companies entering the North American market or planning to do business in or with the United States. We assist US businesses planning their foreign business operations in foreign markets and taxing jurisdictions”.
Our services in this area include:
- Global tax planning through IP holding companies, trading or services affiliates;
- Choice of entity;
- Optimal use of equity and debt financing;
- Entity formation and registration;
- Entity day-to-day management and operation;
- Tax domicile and representation;
- Investment planning and structuring and intra-group contractual arrangements and transactions;
- Intra-group payments and withholding tax issues;
- Transfer pricing policy, documentation and implications;
- Corporate restructuring as business considerations or tax rules change;
- Cross-border mergers and acquisitions, reorganizations, liquidations and dispositions;
- International tax reporting and compliance.