Italy: Instant Maturity Principal methodology to apply on certain types of bonds
Clearstream Banking1 informs clients that effective
20 November 2023
the Instant Maturity Principal (IMP) methodology will apply to risk-free rate (RFR) securities as of the next interest period. No transition period will be applied.
Background
Following the IBOR transition and the change of benchmark to risk-free rates, the taxation of RFR securities was questioned through a ruling to the Italian Tax Authorities (ITA) who confirmed the use of the IMP to calculate the tax on these RFR securities.
More specifically, the IMP applies to bonds subject to Legislative Decree 239/1996 which stipulates that withholding tax can only be applied from the time when the interest accrual is determined on a definitive basis, that is, when the necessary data to calculate the redemption value are known. This includes RFR securities and other bonds paying an income that is not determinable at the start of the accrual period.
With the IMP, no substitute tax should apply on trades settled before the interest determination date while coupon payments continue to be taxed if the entity entitled to the coupon payment is a taxable entity.
Impact on clients
Clearstream Banking will apply the IMP calculation method to every security in scope on the interest periods with a start date on or after 20 November 2023.
Clients buying a bond before the interest determination date and selling it after the same period will be taxed on the full period.
Clients buying and selling a bond before the interest determination date will not suffer the substitute tax.
Note: The trades will be considered based on their requested settlement date.
Further information
For further information, please refer to the Market Taxation Guide - Italy.
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1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500, and Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248.