With reply no. 839/2021, the Revenue Agency excludes the recognition to banking institutions established in the United Kingdom of the exemption from withholding tax on interest and other income deriving from medium/long-term loans provided by companies resident in Italy to institutions established in an EU Member State (referred to in Article 26, c. 5-bis, of the Presidential Decree n. 600 of 1973).
The request from a UK Credit Institution
The ruling arises from the request of a credit institution established in the United Kingdom regarding the possibility of continuing to apply the legislation referred to in the abovementioned article, also following the withdrawal of the United Kingdom on February 1, 2020 from the European Union.
In order to facilitate access to credit by operators, art. 26 paragraph 5-bis of the Presidential Decree n. 600 of 1973 provides for the exemption from the withholding tax of 26% for interests on medium/ long-term loans granted to Italian companies by:
- Credit institutions established in the Member States of the European Union;
- Entities identified in Article 2, paragraph 5, numbers from 4) to 23), of Directive 2013/36 / EU;
- Insurance companies established and authorized in accordance with regulations issued by Member States of the European Union;
- Foreign institutional investors, even without tax liability, as per article 6, c. 1, letter b), of the legislative decree 1 April 1996, n. 239, subject to forms of supervision in the foreign countries in which they are established.
As of January 31 of 2020, the United Kingdom has officially become a third country for the European Union. A transitional period therefore began, which lasted until December 31 of 2020, in which EU law continued to apply provisionally to the United Kingdom. Consistent with this discipline, the Revenue Agency, with a reply notified on December 7 of 2020, had confirmed the non-application of the withholding tax on interest and other income paid to the applicant bank limited to the transitional period.
From 1st January of 2021, the Trade and Cooperation Agreement on commercial exchanges between the European Union and the United Kingdom entered into force in order to facilitate commercial relations. The TCA promotes a strong partnership between the European Union and the UK.
However, in no case can the provisions of the TCA lead to equalise the United Kingdom with a Member State.
The decision of the Revenue Agency
Indeed, the Revenue Agency believes that it is not possible to extend the subjective scope of application of the rule in question to banks outside the EU, due to the fact that the tax exemption rules, by reason of their special nature, are of strict interpretation. In fact, if the legislator had wanted to extend the exemption in question to non-EU banks, he would have done so expressly. It is therefore clear that the United Kingdom can no longer be considered a beneficiary of the exemption provided for in paragraph 5-bis of art. 26 of the Presidential Decree 600/73, as no longer a member of the European Union.
The Revenue Agency has also provided clarifications on the exemption of UK funds from the 26% withholding tax on interest arising from medium-long-term financing granted by companies.