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Italy-Hong Kong

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Italy Removes Hong Kong from Blacklist for Non-Deductible Expenses and CFC Regime

On 30 November 2015, Italy published a Ministerial Decree amending the country's blacklist for non-deductible expenses and the controlled foreign company (CFC) regime, which includes the removal of Hong Kong. Hong Kong's removal is due to the entry into force of the 2013 Hong Kong-Italy income tax treaty on 10 August 2015 (previous coverage), which provides for adequate information exchange; a condition for the blacklist.

Expenses incurred in transactions with companies in blacklisted jurisdictions require additional proof that the transaction relates to an actual business interest and that the transaction has actually been carried out in order to be deductible. Under Legislative Decree No. 147, a safe harbor limit is introduced, so that the additional proof is only required if the transaction amount exceeds the fair market value (previous coverage).

Under the CFC regime, Italian residents with controlled companies in blacklisted jurisdictions are restricted from claiming the CFC rules exemption. In addition, the participation exemption will not be available for dividends and capital gains from companies in blacklisted jurisdictions.

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