Barbadian – Italian DTA published

The English version of the Convention for the Avoidance of Double Taxation with respect to Taxes on Income and the Prevention of Fiscal Evasion as concluded on August 24, 2015 between the Government of the Italian Republic and the Government of Barbados (Hereafter: the DTA) has been made available on the website www.investbarbados.org.

Although the DTA has been signed, it has not entered into force yet. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.

Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.

Taxes covered
According to Article 2, Paragraph 3 of the DTA (“Taxes Covered”) the existing taxes to which the DTA shall apply are in particular:
(a) in the case of Italy:

(i) the personal income tax;
(ii) the corporate income tax;
(iii) the regional tax on productive activities;

whether or not they are collected by withholding at source

(b) in the case of Barbados:

(i) the income tax (including premium income tax);
(ii) the corporation tax (including the tax on branch profit); and
(iii) the petroleum winning operations tax.

Paragraph 4 of Article 2 of the DTA subsequently arranges that the DTA shall also apply to any identical or substantially similar taxes which are imposed after the date of signature of the DTA in addition to, or in place of, the existing taxes.

Permanent establishment
Paragraph 3 of Article 5 of the DTA (“Permanent Establishment”) arranges that a building site or construction or installation project, or an installation or drilling rig or ship used for the exploration or exploitation of natural resources, constitutes a permanent establishment only if it lasts more than six months.

Business Profits
Article 7 of the DTA (“Business Profits”) contains an interesting Paragraph 4, which reads as follows: “Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary. The method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article”.

Associated Enterprises
Paragraph 2 of Article 9 of the DTA (“Associated Enterprises”) contains a so-called appropriate adjustment clause.

Dividends
If the beneficial owner of the dividends is a resident of the other Contracting State, Paragraph 2 of Article 10 of the DTA (“Dividends”) maximizes the dividend withholding tax that a Source State is allowed to withhold over dividend distributions to:
(a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 10 per cent of the capital of the company paying the dividends;
(b) 15 per cent of the gross amount of the dividends in all other cases.

Interest
Paragraph 2 of Article 11 of the DTA (“Interest”) maximizes the withholding tax that a Source State is allowed to withhold over interest payments to 5 per cent of the gross amount of the interest if the beneficial owner of the interest is a resident of the other Contracting State.

Royalties
Paragraph 2 of Article 12 of the DTA (“Royalties”) maximizes the withholding tax that a Source State is allowed to withhold over royalty payments to 5 per cent of the gross amount of the royalties if the beneficial owner of the royalties is a resident of the other Contracting State.

Capital Gains
With respect to capital gains Paragraph 1 of Article 13 of the DTA (“Capital Gains”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.

Paragraph 4 of Article 13 of the DTA subsequently arranges that gains derived by a resident of a Contracting State from the alienation of shares deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.

Other
Article 29, Paragraph 1 of the DTA arranges that the benefits of the DTA shall not apply to a person entitled to a tax benefit under a special tax regime in either Contracting State.

The DTA furthermore includes articles containing provision regarding a Mutual Agreement Procedure (Article 25 of the DTA) and an article on the Exchange of Information (Article 26 of the DTA).

Click here to be forwarded to the (English) text of the DTA as available on the website www.investbarbados.org.