Italian Fixed Income

Historical Overview

Historically, if Italian issuers wanted to tap international markets, they did so by using a bond issuance format that came to be known as “Eurobond.” The Eurobond structure was originally designed to permit issuers to sell their bonds to foreign investors holding the local currency outside of that currency’s natural market. Investors from all nations could purchase the securities without much fear of tax reporting or tax withholding from the issuer’s country, or sharing of tax information with their own country. Of course, this SPV structure “bypassed” the issuer country’s tax regulation and tax authorities.

Regulatory Framework

Italian tax law now provides for an alternative fixed income securities issuance structure that allows all issuers to freely tap many markets using various instruments. Italian Legal Decree 138 of 13 August 2011 [Official Gazette of the Italian Republic] builds upon Legal Decree 239 of 1 April 1996 and provides that all bond income is subject to 26% substitute tax. However, Law Decree 138 expands the universe of security types which can be issued under Legal Decree 239 that makes tax exemptions available to certain investors if the regulatory requirements are fulfilled:

  • All bonds must be held through a “second level bank” which must transmit information about investor identities to the Italian tax authorities.
  • Investor identity and eligibility for tax relief must be confirmed by the investor’s “first level bank,” the custodian bank, by using modern “Know Your Customer” (KYC) principles.
  • All secondary market movements must be reported.

Exemption Criteria

If these requirements are fulfilled, the following investor and security types are exempted from Italian substitute tax:

Exempt investor types

  • Investors with tax residence in a White List Country
  • Italian corporates and institutional investors
  • Central banks and supra-nationals

Exempt security types

  • Debt instruments including short-term bonds.
  • Commercial paper (and other notes issued with maturities ranging from 1 month to 18 months) issued in an amount that does not exceed the issuer’s current assets.
  • Hybrid securities.

Legal Decree 83 of 22 June 2012 also expanded the scope of issuer types from only listed companies to include unlisted companies as well.

The Monte Titoli Acupay Solution

Acupay has partnered up with Monte Titoli to provide an all-round service to any Italian issuer--be it corporate, financial, listed or unlisted--who would like to tap foreign domestic markets in compliance with domestic laws. Monte Titoli thereby acts as Italian tax representative (within the meaning of LD 239 and LD 632), while Acupay collects the investor identities, the secondary market movements and necessary KYC confirmations from the custodial entities through the Acupay System network. Acupay liaises with the foreign domestic market depositories, their participants and any downstream correspondents regarding tax compliance information and documentation and ensures that all necessary tax liability amounts are transferred to the Italian tax authorities.

The Acupay / Monte Titoli solution can be used for debt issuances in various markets including the Yankee market, the Kangaroo market, the Maple market, the Samurai market, the Bulldog market, the Panda market, and the Dim Sum market. The Acupay/Monte Titoli solution has become particularly famous for its use by large Italian financial and corporate issuers in the Yankee market.