sabato, Luglio 20, 2024
Tax Driver

The new Double Tax Agreement between Italy and China

A cura di Elisa Tedeschi


The new Double Tax Agreement (DTA)between Italy and China has been signed in Rome[1] on March 23rd 2019, with the supervision of the Italian Minister of Economy and Finance, Giovanni Tria and the Chinese Foreign Minister Wang Yi, for the achievement of the following goals: avoidance of double taxation, prevention of fiscal evasion, promotion of the investments and fiscal certainty.

The Treaty will enter into force after the ratification by both China and Italy and the conclusion of the exchange of ratification instruments. Once ratified, the Agreement will replace the current Double Taxation Treaty between the two abovementioned countries, signed on October 31st 1986.


The purpose of this article is to analyze the role of the OECD/G20 BEPS Standards and of the OECD Multilateral Instrument, the relevant provisions of the new DTA and to compare them to the 1986 version, in order to outline the relevant changes and the goals to be achieved.


  1. The role of OECD/G20 BEPS Standards and of the OECD Multilateral Instrument (MLI)

The provisions of the new DTA are coordinated with the OECD/ G20 BEPS (Base Erosion and Profit Shifting)Project and with the OECD Multilateral Instrument (“MLI”),signed by China and Italy on June 7th 2017(although still not ratified). The former “refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under the OECD/G20 Inclusive Framework on BEPS, over 125 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS” [2].

On the other hand, “the MLI offers concrete solutions for governments to close the gaps in existing international tax rules by transposing results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide”[3]. The MLI changes the application of several bilateral Tax Treaties to achieve the elimination of the double taxation. It also implements agreed minimum standards to impede treaty abuse and to enhance dispute resolution mechanisms together with a work on flexibility to accommodate specific tax treaty policies”[4]. 

In compliance with the MLI minimum Standards for the protection against the abuse of tax treaties, a new statement has been placed in the Treaty preface: the Countries how that their common aim is the elimination of the double taxation without leading to the creation of opportunities for non-taxation or reduced taxation by the means of tax evasion or avoidance, including through treaty-shopping arrangements. Within this context, it is important to underline the Principal Purpose Test(PPT) clause included in the DTA, involving a general anti-abuse rule, guided by the provisions of Article 6[5]of the MLI.

The PPT “will apply to deny treaty benefits if, having regard to all relevant facts and circumstances, it is reasonable to conclude that obtaining the treaty benefit was one of the principal purposes of an arrangement or transaction that directly or indirectly resulted in that benefit”[6]. Only one exception is covered: the circumstance involving the benefit accordance with the relevant provisions of the Agreement.


  1. Dividends

The Article 10 of the new DTA is related to the taxation of the dividends.It is provided that beneficial holders of at least 25% of the share capital of the company paying dividends, for a defined minimum period of one year, they will be qualified for the preferential 5% tax rate. Making a comparison with the existing rules under the 1986 DTA, articulating that the tax charged shall not be superior to the 10% of the gross amount of dividends, it can be outlined that the rate dropped by 5%, pursuing a benefit for the Italian companies which get dividends deriving from Chinese sources, together with stimulus for the capitalization of Chineseenterprises in Italy using the mean of the equity investments.Furthermore, the one year period shall include the day in which the payment of the dividend has been made and, in relation to the aim of computing that period, changes of ownershipdirectly deriving from a corporate reorganization, such as a merger or de-merger of the company that holds the shares or that pays the dividends ,will not be considered.  3.      Interests 

In the Article 11, the new DTA introduces an exception to the rule (which still applies) provided under the 1986 version stating that the tax on the interest shall not exceed the 10% of the gross amount of the interest. The exception refers to a preferential 8% withholding tax in relation to the interest paid to financial institutions of the other State, deriving from loans having the following features:

  • maturity of a minimum period of three years
  • having a destination to financing investment projects

What is the meaning of “investment projects”?

There is not a specific definition , but “it is arguable that this notion should encompass projects in the field of infrastructure which were also part of the umbrella deal entered into by the two Countries under the Silk Road project[7].

Moreover, the Agreement broadens the scope of the exemption from taxes on interest already ensured under the 1986 DTA. Thus, no tax shall be imposed on interest paid to, among the others, publican tities. This provision directly concerns certain Italian financial institutions, such as Cassa Depositi e Prestiti, not included as an exemption under the provisions of the 1986 version. Furthermore, the Agreement introduces a specific exemption on interest paid by certain Italian financial institutions to people having the residency in China in relation to the emanation of debt securities known as the Panda Bonds, intended for institutional investors operating in China, whose income will be used for the direct or indirect financing of  branches or subsidiaries of Italian companies based in China[8].

The main objectives behind this new framework are the progression and the strengthening of the cross-border investments between Italy and China, also through the use of project-financing, making it more effortless.


  1. Royalties


Article 12 is related to royalties. The new DTA doesn’t change the provision set in the 1986 version, stating that beneficial owners of the royalties shall not be taxed at an amount exceeding the 10%.

However, the Agreement introduces a reduction of taxation that can be applied to the royalties coming from the use or the right to use of industrial, commercial or scientific equipment. This means that the 1986 DTA establishes a 10% withholding tax charged on 70% of the gross amount of the royalty, resulting in a 7% tax rate, while the new version states the application of the tax only on the 50% of gross amount, leading to an effective 5% tax rate: a more favorable term has been established.


  1. Capital gains


Article 13 provides for the allocation of taxing rights in the situation of capital gains.

The new DTA confirms that capital gains coming from the alienation of a qualified holdings equal to at least 25% are taxable but a new provision is introduced: the taxation of capital gains is allowed only if the abovementioned threshold of participation has been held at any time during the twelve months before the sale.

Furthermore, the 2019 version of the Agreement states that all cases of capital gains not specifically regulated by Article 13 shall be taxed only in the State of residence of the seller. This is a considerable change due to the fact that the 1986 DTA set a general rule that can be applied to all the residual cases: concurrent taxation between the two States.





[2] “About the Inclusive Framework on BEPS”, disponibile qui:

[3] e [4]“Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS”, disponibile qui:

[5]Multilateral Convention to implement Tax Treaty related measures to prevent Base Erosion and Profit Shifting” , disponibile qui:

[6] J.K, L.H, “MLI: testing the principal purpose”, disponibile qui:

[7] “New China-Italy Double Tax Treaty”, disponibile qui:—Italy-China-Double-Tax-Treaty.pdf

[8] A. Caparello, “Cosa sono e quali rischi comportano i Panda Bond”, disponibile qui:





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