Foreign investment funds: Italian CFC rules do not apply

The Italian CFC legislation does not apply with respect to the so called harmonised funds, i.e. funds administered under the provisions of Directives 85/611/EEC and 2009/65/EC, as well as with respect to those undertakings of collective investment, which do not conform to these directives, but are established in the EU Member States or in the EEA countries and are subject to forms of supervision.

This is one of the most relevant clarifications provided for in the circular no. 23/E issued on 26 May 2011, whereby the Italian Tax Administration pointed out that the expression “company or other entity resident or located in States or territories with preferential tax regime” referred to in Art. 167, paragraph 1, of the Italian Income Tax Code, includes any foreign legal entity that cannot be strictly classified as a company.

However, the CFC legislation does not apply with respect to those foreign entities which meet the following requirements:

  • they are owned by several investors who are not connected to each other;

  • they pursue some investment policies that are determined by criteria and regulations subject to public supervision;

  • they are managed by subjects which perform such activity professionally and independently from the participants.

The Italian Tax Administration has however the power to verify the actual meeting of the mentioned requirements.

Similar considerations apply to investment funds located in the white-listed countries, which allow Italian Tax Authorities to verify through the exchange of information the existence of such requirements. With regard to undertakings of collective investment established in black-listed countries, as well as in non-black-listed countries (which do not exchange information adequately), the Italian Tax Administration clarifies that the resident taxpayer should apply for the non-application of the CFC rule.


Should the CFC rule apply, income earned by the foreign fund is taxed under the principle of transparency in the hands of the resident taxpayer, according to the Italian rules of determination of business income and at a minimum tax rate of 27 percent.

#italiantaxlaw #cfcrule #foreigninvestmentfunds

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