Update of the double taxation Agreement

Update of the double taxation Agreement between the Italian and Chinese governments

On 15 April 2024 the Council of Ministers, upon the proposal of the Minister of Foreign Affairs and International Cooperation, Antonio Tajani, approved a bill for the ratification and execution of a previous Agreement stipulated with the government of the People’s Republic of China regarding double taxation with respect to income taxes and the prevention of tax evasion and avoidance.

The text approved on 15 April updates the already existing Agreement signed between the two States on 31 October 1986, in order to adapt the legislation to the recommendations of the OECD/G20 BEPS (Base Erosion and Profit Shifting) project.

The updated Agreement applies to residents of the contracting States, and for Italy in particular relates to IRPEF, IRES and IRAP taxes, by setting general and subsidiary criteria through which defining a person as “resident of a Contracting State”, and by clarifying the cases in which a “permanent establishment” is involved.

The approved text regulates specific topics related to the double taxation issue, among which there are: taxability of real estate income, which must be taxed in the State in which the real estate that represents the income source is located (albeit in a non-exclusive manner); the treatment of business profits, as well as profits deriving from the operation, in international traffic, of ships or aircrafts; taxation rules for capital income regarding dividends, interest, royalties and capital gains; distribution of taxation in the two contracting States in relation to: independent professions, subordinate work, members of management and supervisory boards, remuneration from artistic and sporting activities, as well as sums received as pensions or for other public functions performed; the criterion of exclusive taxation in the State of residence for any other residual type of non-mentioned income; the methods for eliminating double taxation, in accordance with the domestic legislation of each contracting State; anti-abuse provisions, the principle of non-discrimination, the mechanism of the amicable procedure for the resolution of disputes, and the exchange of information between the two States.

This initiative signals the intention of both governments to improve the condition of Italian companies operating in China and to give more certainty to Chinese investors interested in or already engaged with the Italian business environment.