A non-resident company wished to dispose of an Italian software company.

The disposal of this software company by the Seller gave rise to a gain, which would be subject to Italian non-resident capital gains tax at 26%. However, if the terms of a double tax treaty are satisfied then any gain realised on the disposal is taxed in the country of the Seller and not Italy. The first risk identified here was that the Italian tax authority would dispute the applicability of the DTT and require the Seller to pay 26% non-resident capital gains tax on the disposal. The Seller was conservative and so offered to pay a participation exemption on the sale. From this, another risk was identified, being that the rate of participation exemption applied could be challenged by the Italian tax authority. Both risks were rated as remote, due to the substance of the first risk entitling the Seller to claim full relief under the double tax treaty and the inter-operation of the second risk with the first.

Despite the very large limit requested, we were able to offer an insurance solution for both risks, facilitating the sale and allowing the transaction to go ahead.

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