Investment Management Exemption in Italy: new clarifications

by Francesco Nicolosi

On 16 October, the Italian Minister of Economy and Finance released for public consultation a draft decree (Decree) aimed at implementing the so-called Investment Management Exemption (IME) regime. The IME regime is a protective regime which excludes the risk that the investment manager / an advisor operating in Italy is qualified as permanent establishment of the foreign vehicle. In particular, provided that certain conditions are met the manager/advisor is not qualified as a dependent agent of the foreign vehicle. 

The IME applies only to financial investments (real estate and commodity investments are excluded). Therefore, IME will mostly apply to the private equity sector. 

The IME applies provided that the following conditions are met: 

1. The foreign investment vehicle (and its direct or indirect subsidiaries) is resident/established in a foreign State that allows an adequate exchange of information with Italy;

2. The foreign vehicle falls within one of the following categories (being irrelevant whether the entity is set up as a body corporate or a contractual form):

a. Undertakings for collective investment (UCI), established in a Member State of the European Union (EU) or the European Economic Area (EEA), that either comply with UCITS IV Directive or have a manager who is subject to supervision in the State where it is established pursuant to Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 (AIFMD);

b. UCIs, other than those referred to in point 'a.' above, that:

i. Raise capital from a plurality of investors and manage assets as a pool in the interest of the investors and independently from them according to a predetermined investment policy;

ii. Are directly subject to, or have a management entity subject to, prudential supervision and have governing regulations that are substantially equivalent to UCITS IV Directive or AIFMD;

c. Entities, other than those referred to in points 'a.' and 'b.' above, that are subject to prudential supervision, with an exclusive or principal purpose to invest the capital raised from third parties in accordance with a predetermined investment policy, and in which the following conditions are met:

i. No person holds more than 20% of share capital or assets, including shareholdings held by persons linked by close ties within the meaning of Article 1 (6-bis.3) of Legislative Decree No. 58 of 1998 (Consolidated Law on Financial Intermediation);

ii. The capital raised is managed upstream in the interests of the investors and autonomously from them;

3. Only in case of non-UCI vehicles (i.e. sub. c), employees and directors of the same person, must fulfil the following conditions:

a. The person must not hold operative roles in the administrative and control bodies of the foreign investment vehicle or of its direct or indirect subsidiaries;

b. The person shall not hold a stake in the economic results of the foreign investment vehicle exceeding 25% of the total economic results of the latter;

4. The remuneration received by the asset/investment manager / advisory company for its management or advisory activity, where stemming from an intercompany transaction, is supported by the so called “TP DOC”, compliant with Italian regulations. 

Under the above-mentioned conditions, a foreign investment vehicle is not necessarily deemed to have a 'fixed place of business' at its disposal in Italy merely because a resident entity carries out an activity, in its own premises and with its own personnel, that may trigger benefits for foreign investment vehicle.

If the IME regime does not apply, the Italian Tax Authorities (ITA) must perform a case-by-case assessment to evaluate the challenge that asset/investment management activities carried out in Italy may trigger an Italian permanent establishment.

Any claim raised by the ITA as for the remuneration of the manager/advisor could result in a higher taxation in the hands of the manager itself. However, such claim will not trigger the existence of a permanent establishment in Italy, provided that the relevant TP Doc is provided.