Reduction to half of mortgage and cadastral taxes in Italy
The reduction of mortgage and cadastral taxes to half of their original amount is also extended to foreign open-ended real estate funds.
In Italy, transfers of instrumental buildings are typically subject to ad valorem mortgage and cadastral taxes of 3% and 1%, respectively, based on the higher of the price or the market value of the assets transferred. However, if the transferor or transferee is a closed-ended real estate investment fund set up according to the Italian Financial Act, these rates are reduced by half. UBS Real Estate, a German company managing open-ended real estate funds, purchased two instrumental buildings in Italy on behalf of the UBS Funds and paid the taxes at the regular rate. After the purchase, UBS Real Estate filed a claim for a refund of half the taxes paid, arguing that open-ended funds should also qualify for the reduction. The Italian Tax Authorities did not respond to the claim, leading UBS Real Estate to bring the matter to the Italian Supreme Court, which referred the case to the European Court of Justice. The ECJ ruled that it is discriminatory to apply a different treatment between open-ended and closed-ended real estate funds and that such legislation is in violation of the Treaty on the Functioning of the European Union (TFEU) unless it can be justified by the objective of limiting systemic risks in the real estate market. The Italian Supreme Court subsequently ruled in favor of UBS Real Estate, finding that the Article 35(10-ter) of the Decree 2006 was in contrast with Article 63 of TFEU. However, it is important to note that for foreign funds to qualify for the reduced tax rate, it must be determined on a case-by-case basis whether they meet the definition of collective investment undertakings under Italian law, considering factors such as the raising of capital from investors, the plurality of investors, the independence of the managers from the investors and the pre-defined investment policy.
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