Certain provisions amending the Bank of Italy Regulation on collective investment management (Regolamento sulla gestione collettiva del risparmio) of 19 January 2015 (the Regulation) were published on the Official Gazzette No. 3 of 4 January 2017. The Regulation now includes the long-waited implementing rules for direct lending by EU alternative investment credit funds (EU Credit AIFs) setting out the conditions and the relevant “clearance” procedure to start direct lending into Italy. As a result, direct lending by EU Credit AIFs is now allowed in accordance with article 46-ter of the Italian Financial Act.
The current framework can be summarised as follows.
(A) Main requirements applicable to direct lending by EU Credit AIFs into Italy
Direct lending by EU Credit AIFs is allowed provided that:
(a) the loan is granted to persons other than “consumers”;
(b) the EU Credit AIF is authorised in the EU Home Country to invest in credits;
(c) the EU Credit AIF is a close-end fund and is subject to an equivalent functioning scheme (schema di funzionamento), including in terms of categories of investors that can invest in the fund;
(d) the EU Credit AIF is subject to rules on risk mitigation (including maximum leverage ratio) equivalent to those applicable to Italian credit AIFs; and
(e) the Bank of Italy is notified by the EU Credit AIF manager at least 60 days before the EU Credit AIF starts lending into Italy. The Regulation specifies the content of the prior notice and all relevant attachments that an EU Credit AIF manager must provide to the Bank of Italy in order to pass the necessary “equivalence test”. The Bank of Italy confirms in writing to the applicant the completeness of the application through a "confirmation receipt" (or alternatively may request supplemental information and documents) and may prevent the applicant to do direct lending within the following 60 days. Once this term has elapsed without any prohibition order being issued, direct lending can be started.
(B) Reporting duties and rules on transparency and sanctions
EU Credit AIFs may be subjected to reporting duties towards the Bank of Italy (Centrale dei rischi). The current regulatory framework provides that the EU Credit AIF manager must send the fund management report to the Bank of Italy within 10 days from its approval. Any change to the information provided to the Bank of Italy in the context of the prior notification procedure described under (A)(e) above must be promptly notified to the Bank of Italy, which may decide to prohibit the continuation of the lending activities by the EU Credit AIF.
Direct lending by EU Credit AIFs is subject to the same rules on transparency and sanctions set out in the Italian Banking Act as applicable to Italian Credit AIFs.
(C) Tax regime
Loans executed in Italy and granted by EU Credit AIFs are eligible to be subject to the substitute tax regime (i.e. 0.25% of the loan amount) (if it is opted in by the parties) provided that the loan is executed in Italy and has a duration exceeding 18 months and 2 days. If a loan is subject to 0.25% substitute tax regime, the loan itself and the related security package are exempt from any registration, stamp, mortgage and cadastral taxes or Government concession fees otherwise applicable.
No withholding tax (WHT) should be applicable on interest paid:
(a) on loans advanced to an Italian enterprise, and which have a contractual maturity exceeding 18 months and 2 days; and
(b) granted by inter alia certain institutional investors (among which investment funds) subject to supervision and resident/established in a “White-Listed Jurisdiction” (which notion includes inter alia all EU Member States) and beneficially entitled to the income; and
(c) provided that the relevant financing transaction complies with the Italian regulatory laws on lending activities.