Italy: Guidance on application of elective alternative CFC tax
Confirms retroactive application of the new regime from January 1, 2024
The tax administration on March 31, 2026, issued guidance on the application of the elective 15% tax under the Italian CFC regime.
Under Italian CFC rules, the low taxation test is generally applied by assessing if there is a relevant threshold of 15% effective taxation in the CFC jurisdiction. In alignment with Pillar Two, such assessment is based on the ratio of the foreign tax burden (including current and deferred taxes, and the portion of QDMTT attributable to the CFC) to the CFC’s accounting pre-tax profits. Recent updates to the rules provide for an election allowing taxpayers to determine the CFC’s effective taxation through a simplified method, by applying a 15% tax on the CFC’s net accounting profits, which results in the standard CFC effective taxation test being deemed satisfied, subject to certain conditions.
The new guidance provides clarifications with respect to this new elective 15% tax with a particular focus on eligibility conditions, the duration of the election, the determination of the tax base and the treatment of profit distributions from CFCs. It also confirms the retroactive application of the new regime from January 1, 2024.
Read an April 2026 report prepared by KPMG’s EU Tax Centre