EUROPE NEWS: Italy fights deficit

With characteristic flair, Italy is hitting real estate fund managers where it hurts – in the pocket.

With the nation gripped by €24 billion of budget cuts, Silvio Berlusconi’s administration has passed into law Emergency Decree No. 78 2010 (part of the Financial Stability Act) which will lead to a five or seven percent tax on net assets of real estate funds.

Under the decree, fund managers must comply with a revamped Financial Intermediaries Act 1998, and collect a 5 percent tax on net assets, payable in three instalments.

Those funds that don’t comply with the revamped Intermediaries Act will be taxed at an even higher rate of 7 percent and must be put into liquidation.

Alessandro Stoppa, Milan-based partner in the corporate practice at law firm Paul Hastings, said that alterations to the Intermediaries Act concerned issues such as making sure fund managers were autonomous over participants in a fund, and that the tax would affect foreign investors that use tax-efficient vehicles to manage Italian real estate. “This latest development is going to have a pretty big effect on liquidity for a number of managers,” he added.