The Italian budget law for 2016, Law n. 208 of December 2015 ("the Budget Law"), passed by the Italian Parliament on December 22, 2015, repealed Italy’s tax "blacklist" rules. Such changes will remove significant limitations of doing business with previously blacklisted jurisdictions and, taken together with the Italian Government’s 2015 tax information exchange agreements signed with Guernsey and Jersey, should soon make Guernsey and Jersey eligible for Italy’s "whitelist" and the favorable tax rules governing the treatment of interest received from government bonds and listed companies.

The Italian Government had previously maintained a formal blacklist identifying certain countries that do not provide adequate fiscal or financial information on companies that are resident and doing business in those jurisdictions. Italy has over the years listed dozens of blacklisted countries.  A significant limitation of being included on the blacklist had been that costs and expenses paid to residents of blacklist countries were nondeductible or since 2015 deductible but with certain limitations. In addition to the Italian blacklist rules, Italy also taxed income earned by Italian-owned subsidiaries in blacklisted countries or in low-tax countries (so-called "controlled foreign corporations" or "CFCs"). Moreover, residents of blacklisted countries were ineligible for certain Italian tax regimes, such as the reduced withholding on the receipt of interest from the Italian government or listed companies or of proceeds from certain other notes; such benefits were limited to countries listed on a separate whitelist.

The 2016 Budget Law repeals the blacklist rules restricting the deductibility of costs and expenses and those deeming blacklist countries to be CFCs. As a result, as of January 1, 2016, the only criterion for the application of Italy's CFC regime is the "low level" of corporate taxation of the CFC in its country of residence—i.e., a rate that is 50 percent or lower than the Italian corporate tax rate (currently 27.5 percent).

The blacklist repeal opens up the possibility that previously blacklisted countries may be eligible for inclusion in Italy’s whitelist. In November 2015, the Italian Government approved Legislative Decree No. 147 ("Decree promoting growth and internationalization"). The changes introduced by this decree include the rewriting of Legislative Decree No. 239 of 1996 (which sets the rules for taxation of interest from bonds and similar notes issued by Italian issuers ). After this change, an exemption from the Italian withholding tax extends to "countries contained in the whitelist that allow an adequate exchange of information" with the Italian Tax Authorities. The whitelist is to be updated every six months by Ministerial Decree, so as to include all the (new) countries that from time to time meet the requirements and that are therefore to be considered as whitelisted.

During the second half of 2015, a number of Tax Information Exchange Agreements ("TIEAs") have been ratified by the Italian Government, including with Guernsey and Jersey (both entered into force on June 30, 2015). Following these developments, the governments of Guernsey and Jersey made formal representations to the Italian Authorities expressing the view that, given the level of cooperation attained in the exchange of tax information, both upon request and automatically, there is no longer justification for their not being included on the Italian whitelist.

It would indeed seem that after the entry into force of their TIEAs, both Guernsey and Jersey should meet the requirements to be considered "countries that allow an adequate exchange of information with the Italian Tax Authorities" pursuant to applicable Italian law and, therefore, they should meet the requirements to be also included in the Italian whitelist. However, in order to be legally considered white-listed for purposes of Italian Tax Law, a country’s formal inclusion in the whitelist is required and, to this end, a specific Italian regulation must first be enacted. This has not yet occurred, but it is reasonable to expect that in the first half of 2016 the Italian whitelist will be updated. As of today, however, it is not possible to predict exactly whether and when Guernsey and Jersey will actually become whitelisted for purposes of Italian Tax Law.