“CAPITAL COMPETITIVENESS” BILL, A SUMMARY OF NEW MEASURES IDENTIFIED BY THE ITALIAN GOVERNMENT.
On April 11, 2023, the Council of Ministers of the Italian government adopted the draft law aimed at increasing the competitiveness of the Italian capital market, which provides for (i): measures to simplify and rationalize the rules for companies to access and remain in the capital market, without however reducing the safeguards of investors and the integrity of the markets themselves; and (ii) incentives both on the demand and supply side, to direct private savings to companies.
The draft law, which is subject to amendments, consists of 22 articles and will soon be submitted to Parliament for approval, originates from the report “OECD Capital Market Review of Italy for 2020: Creating Growth Opportunities for Italian Companies and Savers (OECD Capital Market Series),” commissioned by the Ministry of Economy and Finance (MEF) and published by the OECD at the end of January 2020, which was followed by: a discussion with Consob, Bank of Italy, trade associations and major market players; the publication in 2022 of the Green Paper on “The Competitiveness of Italian Financial Markets to Support Growth,” and a public consultation. In the draft under examination, inter alias, we note the following:
1. Exemptions from the regulation regarding offers offsite that are extended to cases of self-placement for which there is no clear need for protection towards the investor: (i) subscription transactions for amounts higher than or equal to €250.000 or carried out by issuers listed on regulated markets or MTFs, regardless of the amount of the individual subscription; (ii) offers to sell or subscribe its own shares with voting rights or other own issued financial instruments that enable the acquisition or subscription of such shares, provided that they are issued by issuers whose shares or financial instruments are traded on regulated markets or MTFs in Italy or countries within the European Union (Art. 1).
2. The definition of SMEs is extended, to include all issuers with a market capitalization of less than €1 billion, and provides for various measures regarding the dematerialization of SME shares: (i) allowing access, on a voluntary basis, to the dematerialization regime provided under Article 83-bis of the Consolidated Banking Act (Testo Unico della Finanza – “TUF”) (as an alternative to the special regimes already in place), thus resulting in a reduction of administrative costs and burdens related to the issuance and transfer of shares; (ii) establishing that the issuance in book-entry form determines the application of the TUF rules on “Centralized Management under the dematerialization regime“; (iii) providing for the obligation to keep the shareholders’ register for SMEs that avail themselves of the new circulation regime (Art. 2).
3. The reform of the regulation regarding issuers of widely held financial instruments to ensure a correct balance between the need for capital market development and investor protection; more specifically, it envisages (i) the abrogation of certain obligations that, to date, are applicable to publicly traded companies (for which only the rules for listing on MTFs will apply) and companies listed on regulated markets; (ii) that certain rules on which European harmonization has intervened will not apply to publicly traded companies, including, for example, those on transactions with related parties under Article 2391-bis; (iii) the extension to MTF issuers of the rules on shareholders’ agreements under Article 2341-bis of the Italian Civil Code, the rules on treasury shares (limit of purchase of 20% of the capital and computation in constitutive quorum under Articles 2357, first paragraph and 2357-ter, of the Italian Civil Code) (Articles 3 and 4).
4.A provision to allow companies with shares traded on MTFs to prepare financial statements in accordance with international accounting standards (Art. 5).
5. The deletion of the rule that currently allows Consob to discretionally increase the free float (to sufficiently ensure smooth trading), now applicable to entities holding more than 90 percent of the capital, given that it does not derive from European regulatory constraints and may lead to interpretative difficulties regarding the extent of the free float increase (Art. 6).
6. Amendments to encourage professional investors to subscribe debt securities and facilitate the issuance of debt securities by capital companies that are not listed on regulated markets. Among other measures, there are plans to amend Article 2412 of the Italian Civil Code, so that the company will be able to issue bonds for a total sum exceeding twice the share capital, legal reserve and available reserves resulting from the latest approved financial statements when the subscription and subsequent circulation is reserved solely for professional investors; the amendment of Article 2483 of the Italian Civil Code which means that where the subscription and subsequent circulation are reserved for professional investors, there is no longer the obligation to intervene in order to guarantee solvency purposes, by a professional investor subject to prudential supervision (Article 7).
7. Measures are envisaged to encourage capital increases, proposing – for a trial period of two years – the application of the rules already provided until June 30, 2021 by Article 44 of Legislative Decree No. 76 of July 16, 2020 (the so-called Simplification Decree) to support recapitalization operations (facilitated quorums for the approval of increase resolutions) and, in addition, for the same period, companies with shares listed on regulated markets or with shares traded in multilateral trading systems, will have the right to decide the capital increase with the exclusion of the pre-emptive rights, within the limits of 20% of the pre-existing share capital (the ordinary regime provides for a threshold equal to 10% even in the absence of an express provision to this effect in the articles of association) (Art. 8).
8. Various measures are envisaged to simplify procedures for admission to trading and broaden the definition of SME issuers of listed shares (Art 9).
9. Amendments are made to the rules for approval of the prospectus and the responsibility of the placer; for this purpose, it is clarified that the deadlines for approval of the prospectus run from the date of submission of the draft prospectus as required by the European regulations, and the placer’s responsibility regime is amended (Art. 10).
10. The obligation under Article 114 of the TUF to report transactions to the public, made by shareholders holding shares amounting to at least 10% of the share capital and any other person controlling the listed issuer is abolished (Article 11).
11. Provided that this possibility is allowed by the bylaws, a provision is made to have the shareholders’ meeting of listed companies exclusively through the representative appointed by the company pursuant to Article 135-undecies of the TUF (in line with the provisions of the Covid measures), as well as the right to submit resolution proposals, ask questions and obtain answers from the company outside the shareholders’ meeting, so that the proposals and information provided by the company can be taken into consideration by the shareholders when issuing voting instructions to the appointed representative (Article 12).
12. The number of votes to be allocated to each multi-voting share is expected to be increased from three to ten, limited to new listings (amendment to Article 2351, paragraph 4, last sentence, Civil Code) (Art. 13).
13. There are plans to extend the qualification of “eligible counterparties” to private and privatized social security institutions for the provision of investment services (currently they are identified as “professional clients on request” thus resulting in the application of procedures and related costs, which do not implyactual benefits in terms of protection and safeguards (amendment art. 6, paragraph 2-quater, letter d), no. 1, TUF); the government believes this should encourage the flow of investments to capital markets (Art. 14)
14. Measures are provided to simplify the regulation of the hetero-managed Sicavs and Sicafs, clarifying that these companies are not among the entities authorized for collective asset management and subjecting these entities to the regulations provided for mutual funds (Art. 15).
15. A provision is made for the possibility to grant a portfolio manager the power to exercise voting rights for several shareholders’ meetings, thus eliminating the reference to the single shareholders’ meeting, also in line with the Shareholder Rights Directive II, or SRD II, soon to be implemented in Italy (amendment art. 24, paragraph 1, letter c) of the TUF) (Art. 16).
16. A provision is made for the possibility that a third party may act directly against the Authority in the event that it has suffered a damage, consistent with solid case law on the matter, that can be compensated immediately and directly attributable to the same authority’s failure to supervise compliance with laws and regulations (Art. 17).
17. Changes are envisaged to the cooling off and cooling in regulations of members and managers of Consob, the Bank of Italy and Ivass, so as to strengthen their independence, reduce the risk of conflict of interest and industry interference in supervisory activities. In particular, the period of inactivity of staff or members of governing bodies engaged in professional activities in the regulated sector is expected to be reduced, in order to improve the attractiveness of the supervisory authorities versus the necessary professionalism. In addition, the definition of “ineligibility” is rephrased due to the type of position previously held, so as to exclude its application where there is “little relevance” (Art. 18).
18. New powers are envisaged for Consob to combat advertising activity concerning investment services and activities provided by unauthorized parties, thus allowing for investor protection to be brought forward to an earlier time, and sanctioning powers. Among other things, Consob will have the power to order internet connectivity providers to remove (by exercising the power to shutdown) advertising campaigns carried out via the internet and concerning investment services and activities offered and/or provided by abusive financial operators; in addition, Consob will be attributed specific sanctioning powers, so that it will be able to issue decisions with commitments (in line, among other things, with the corresponding regulations already envisaged for the Antitrust Authority) and reach negotiated solutions on financial market disputes thereby achieving a reduction in litigation (Arts. 19 e 20).
19. Financial education is included, among the principles, competencies and learning objectives of the transversal teaching of civic education (Art. 21).
20. Measures are included to strengthen the operation of the separate and autonomous asset called “Patrimonio Rilancio” of Cassa Depositi e Presiti S.p.A., as an instrument aimed at implementing interventions and operations to support and relaunch the Italian economic-productive system, also through the strengthening of companies’ assets. In particular, a number of simplifications are envisaged, such as: the possibility for companies targeted by the interventions to use one or more pro-forma financial statements, certified by an auditor; the amendment of the provisions on preliminary investigation so as to allow a more in-depth and substantial evaluation (Art. 22).
The process of approval by Parliament will certainly lead to further changes, in any case the measure seems to go, for once, in the direction of simplification of rules that often incorporate a case of gold plating. We shall see what the Parliamentary debate will produce.
BY JUDGMENT NO. 14840/2023, THE JOINT DIVISIONS OF THE COURT OF CASSATION RULED THAT THE ADMISSION OF EVIDENCE PROVIDED FOR IN ARTICLE 168-BIS OF THE CRIMINAL CODE DOES NOT APPLY TO LEGAL ENTITIES UNDER LEGISLATIVE DECREE NO. 231/2001.
On 6 April 2023, the Joint Divisions of the Court of Cassation published the grounds that had led it, in October 2022, to declare the inapplicability of the probation in relation to the liability of legal entities for criminal offences, after a joint examination of the provisions of Legislative Decree no. 231/01 and articles 168-bis et seq. and articles 464-bis et seq. of the Code of Criminal Procedure.
There are two opposing lines of case-law on this subject: (i) against the admissibility of probation, it has been pointed out that this institution is manifested by the performance of work in the public interest, which falls entirely within the category of criminal sanctions, as well as the fact that, in accordance with the principle of reservation of the law, this special discipline is not applicable in cases not expressly provided for and, therefore, to companies in relation to the liability of legal entities for offences pursuant to Legislative Decree 231/01 (Court of Milan, 27 March 17); (ii) On the other hand, it has been pointed out, in a favourable sense, that the application of the probationary period to the legal entity does not determine a violation of the principles of taxability and the reservation of criminal law, but, on the contrary, generates favourable effects. In any case, the lack of coordination between the substantive provisions on probation and those of Legislative Decree No. 231/01 would not be an expression of the legislator’s choice to exclude legal entities from the subjective scope of the institution in question (Court of Bari, 22 July 22).
The Joint Divisions, after having preliminarily reaffirmed that the legal nature of the liability of legal entities for offences can be traced back to a “tertium genus” of sanctions, which combines the “features of the criminal and administrative systems“, emphasised that the institution of probation, although it has positive effects for the defendant who accesses it and although it is in any case left to the spontaneous observance of the prescriptions by the subject, who participates in a ‘re-socialisation’ programme on the basis of his own free choice, has an ‘undoubtedly punitive’ nature.
This would be demonstrated, in the view of the Joint Divisions, by the offender’s performance of an unpaid service to the community, by the adoption of conduct aimed at eliminating the harmful or dangerous consequences of the offence, by the compensation of damages and by the obligations arising from the exercise of activities of social relevance. Equally symptomatic of the substantive nature of the measure would be the necessary proportionality between the seriousness of the offence committed and the prescriptions issued under the probation programme as well as the provision of Article 657-bis of the Code of Criminal Procedure which, in the event of a negative outcome of the programme, provides for the deduction from the sentence imposed on the defendant of the amount actually carried out by the offender in accordance with the prescriptions given to him.
Having said this, the Joint Divisions pointed out that allowing the legal entities charged under Legislative Decree 231/01 to access this institution would constitute a violation of the principle of reserve of the law as well as of the principle of legality, as it would allow the application of a ‘sanctioning institution to legal entities, a category of subjects not expressly provided for by law as recipients of such treatment’.
Therefore, after having repeatedly debated the possibility of admitting or not admitting the legal entity to the institution of the trial, the Joint Divisions put an end to the jurisprudential conflict on the compatibility of the deflatory institution with the legal entity, sanctioning the non-applicability of the institution in question to the entities indicted pursuant to Legislative Decree no. 231.
THE PREVENTIVE EXPERT TESTIMONIAL ACCORDING TO ARTICLE 696 BIS OF THE ITALIAN CIVIL PROCEDURAL CODE: CONCILIATORY PURPOSES ALONE ARE NOT ENOUGH.
A recent decision of the Court of Nola sums up in an exemplary way the prerequisites to initiate in a right manner a Preventive Technical Assessment (Accertamento Tecnico Preventivo – ATP) pursuant to art. 696 bis of the Italian Code of Civil Procedure (CCP), assumptions that the applicant party sometimes overlooks by relying, with excessive optimism, only on the conciliatory purposes of this preventive investigation.
Heading the appeal as “Conciliatory Preventive Technical Assessment pursuant to art. 696 bis ccpp.” is not enough to effectively promote this tool of preventive instruction before the judge: this is clarified by a recent decision of the Court of Nola (decision 11.04.2023 First Civil Section) which also takes the opportunity to summarize the prerequisites that support the conciliatory ATP.
The case examined by the judge is the following: a consumer files a petition requesting the Court to order a preventive technical assessment to ascertain the causes of a fire that broke out in his car with the engine off while the vehicle was parked near his home.
In support of the petition the claimant files various documents, including letters of claims for damages sent to the seller of the car, to the importer and the manufacturer of the vehicle and the relevant correspondence: these documents reveal a different and opposite reconstruction of the possible causes of the accident with a firm rejection of any claim for damages.
With regard to the conciliatory purposes under article 696 bis CCP, apart from the mere heading, nothing is said in the body of the petition and even less in its conclusions where all that is required is to establish the cause of the event and quantify the damage suffered.
The Court of Nola, in declaring the plea as inadmissible, adopted the following principles and/or rules.
First of all, when there is a dispute about a specific fact, the findings of the Court expert must be able, at least in an abstract way, to definitively settle any conflict between the parties; according to the judge, in fact, the request for the petition must clearly indicate that the only element of disagreement between the parties is what will constitute the object of the technical consultancy in the future litigation; otherwise there would be the risk of simply ordering exploratory investigations (ruling by Court of Milan, Section X, 23.02.2023).
Secondly, the existence of fumus boni iuris is also required in the conciliatory ATP: on this point, the Court clarifies that according to article 696 bis CCP the preventive expert testimonial – since it can be requested even in the absence of the periculum in mora – must at least require a “… fumus boni iuris of the right to protect in the subsequent and eventual judgment on the merits, otherwise the institution will be left to the mere arbitration of the appellant …” (see Court of Nola’s decision).For the sake of completion , it should be noted that the Court of Milan, Section X, had already reached a similar conclusion in a previous ruling dated June 30, 2022.
The third prerequisite required for the proper initiation of the conciliatory ATP, is that any damages under investigation are quantified on the sole basis of the elements offered by the claimant, without the need for further preliminary activities; the Court of Arezzo has also expressed itself about the self-sufficiency of the appeal and the documents produced, in a decision of 4 July 2011, decision mentioned in the measure under review.
Finally, according to the Court of Nola, the appeal pursuant to art. 696 bis CCP must not request the Judge to resolve complex legal questions and therefore the petition is inadmissible when the decision of the case on merits implies the solution of complex legal questions or the verification of facts that go beyond the scope of investigations of a technical nature (Court of Pavia, 14 July 2008 cited by the Judge of Nola).
In the recent past, other rulings on the merits have included this last principle; for example, on the fact that the preventive technical assessment pursuant to article 696 bis CCP cannot be requested if it is invoked to also address legal assessments that are strictly reserved to the judge, see Court of Spoleto 18.05.2015 and, more recently, Court of Rome, section XVI, 29/12/2020.
ANSWER TO RULING NO. 251/2023: THE ITALIAN TAX AUTHORITIES INTERVENED AGAIN ON FOREIGN INTERPOSED TRUSTS. TAX TREATMENT, TAX COMPLIANCE AND MONITORING OBLIGATIONS FOR BENEFICIARIES TAX RESIDENT IN ITALY.
By answer to ruling no. 251 of March 16th, 2023, the Italian Tax Authorities intervened again on the interposition of two foreign trusts, clarifying the relevant tax treatment and the tax compliance and monitoring obligations for beneficiaries tax resident in Italy.
An individual, tax resident in Italy as from fiscal year 2014, established two trusts regulated by the Australian law:
(a) a “Family Trust” including among the beneficiaries the settlor (deceased on 2019), his wife and three sons. The trustee of this trust is a foreign company owned by some natural persons chosen among the beneficiaries;
(b) a “Testamentary Trust” including among the beneficiaries the settlor’s sons, grandsons and great-grandsons. The trustees of this trust are some natural persons chosen among the beneficiaries.
In relation to the above, one of the beneficiaries resident for tax purposes in Italy requested the Italian tax authorities to take a stand on the potential interposition of the above mentioned trusts, with the consequent obligations on his/her tax treatment, tax compliance and monitoring obligations.
The Italian tax authorities replied affirmatively.
In effects, by Circular Letters no. 43/E of October 10th, 2009, and no. 61/E of December 27th, 2010, they already clarified that a trust is considered for Italian tax purposes as “inexistent and thus interposed” whereas:
– the settlor and/or the beneficiary are empowered by the trust deed, whereby the trustee, although having discretionary powers in the management and administration of the trust, may not exercise them without the consent of the settlor and/or of the beneficiary;
– the trustee can’t exercise its powers without the consent of the settlor or of the beneficiary;
– any other case in which the trustee’s power is limited or conditioned by the will of the settlor or the beneficiary.
Consequences: as specified by Circular Letter no. 34/E of October 20th, 2022, in the event that a trust is considered formally interposed to own assets or activities (i.e. “fictitiously interposed”), the income “formally attributed” to the trust must be allocated directly to the beneficiary tax resident in Italy. The interposition of the trust therefore eliminates the distinction between opaque trust and transparent trust for the purposes of Italian income tax.
In the event of an interposed trust acting as a mere “formal blocker”, the Italian tax authorities confirmed the obligation for the beneficiary tax resident in Italy to fulfil and file annually Section RW (“Quadro RW”) of the Italian tax return (i.e. “monitoring obligations”) with the consequent obligations for the purposes of relevant property taxes (namely, tax on the value of real estate located abroad “IVIE”, and tax on the value of financial assets held abroad “IVAFE”).
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