The draft Finance Bill for 2006 was submitted to the parliament on 29 September 2005. It is expected to be approved before the end of 2005.
"Dividend washing" transactions produce a double tax benefit, based on a combination of the exemption regime for dividends and the deductibility regime for capital losses, for shares that do not qualify for participation exemption.
The draft contains, among others, an important modification to the regime for capital losses to curb such transactions. Art. 41 of the draft provides that:
|-||generally, capital losses arising from the disposal of shares, quotas or other financial instruments (assimilated to shares) that do not qualify for the participation exemption are not deductible. The non-deductible amount equals the non-taxable part (i.e. 95%) of the dividends which was distributed in the 24 months preceding the disposal; and|
capital losses on participations that qualify for the participation exemption are not deductible in certain specified circumstances, i.e. capital losses arising from the disposal of shares, quotas or other financial instruments (assimilated to shares) of a company that is not resident in a country with a privileged tax system ("subject to tax" test) and/or performs a commercial activity ("active business" test) are not deductible when the interest was acquired in the 24 months preceding the disposal, regardless of the date of the dividend distribution.
In the above context, therefore, the following dates should be taken into consideration to determine the deductibility of capital losses:
|-||the date of the acquisition of shares, quotas or other financial instruments (assimilated to shares), in the case when the participated company is not resident in a "tax haven" and/or performs a commercial activity; and|
the date of the distribution of dividends, in the other cases related to the participation exemption regime.