Investing in Italy: legal and tax implications Moscow, 2 February 2012

1. Investing in Italy: legal and tax implications Moscow, 2 February 2012 Paolo Bonolis – partner – legal Carlo Romano – partner – tax

2. Agenda 9:00 Introduction to the Italian legal and tax system   9:30 - buying a real estate in Italy - acquisition of an interest stake in Italian company  - the energy and renewable market - private equity 10:15 Tax audit trends - transfer pricing - permanent establishment   10:45 Q&A session   11:00 Conclusions Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 2

3. Introduction to the Italian legal and tax system (1) The legal framework No restriction to ownership and private initiative Anybody can own property Anybody can be a shareholder of a company Ownership of real estate and certain assets (cars, yachts) proved by registration in public registries A notarial instrument is required for registration Italian Companies- most common forms: Limited liability company (Srl) – minimum capital € 10.000 - ownership proved through registration with the companies registry Joint sock companies (SpA) – minimum capital € 120.000 - ownership proved by possession of a duly endorsed share certificates and registration with the company’s ledger Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 3

4. Introduction to the Italian legal and tax system (2) The tax framework Personal Income Tax (PIT) 23% to 43% (+ 3% up to 2013 for income higher than 300k) Corporate Income Tax (CIT) 27,5% (increased to 38% for dormant companies) Regional Tax on Productive Activities 3,9% (4,65% x banks; 5,9% for insurance) Value Added Tax (VAT) 21% (4% or 10%; 23%/12% as of 1.10.12) Real Estate Municipal Tax 0,4% to 0,76% Registration duties Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 4

5. Introduction to the Italian legal and tax system (3) The tax framework Focus on Corporate Income Tax EU law protection Developed Tax Treaty network Participation exemption domestic WHT on interest 20% domestic WHT on dividends 0% - 1,375% - 20% Capital gains 0% - 13,675% - 20% Loss carry forward rules - minimum tax for companies in loss position for 3 FYs Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 5

6. Restrictions to Russian investments Introduction to the Italian legal and tax system (4) The legal framework • Agreement on Reciprocal Promotion and Protection of Investment Between Italy and the Russian Federation 9 April 1996 • Provides for the reciprocity: favors, benefits, or penalties granted by one of the two states to the citizens or legal entities of the another, should be returned in kind. • No specific limits or restrictions to Russian entities and citizens in investing in Italian companies or real estates Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 6

7. Introduction to the Italian legal and tax system (5) The tax framework Italy-Russia Tax Treaty • Agreement entered into force in 1998 • OECD Model Convention • Ordinary tax credit • Business profits only taxed in the residence State unless PE • Construction PE if more than 12 months • Dividend WHT not more than 5% or 10% • Interest WHT not more than 10% • Royalties only taxed in the residence State • Capital gains on shares only taxed in the residence State Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 7

8. The legal framework Limitation to foreign companies to invest in certain sectors Investing in real estate in Italy (current status of the market) Taking a stake-holding in Italian companies – arrangements between shareholders Joint venturing in Italy Energy sector Incentives in renewable investments Privatisation of the Italian public estates Project finance Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 8

9. Investments in Real Estate (1) No restriction Sale&Purchase contracts: formal requirements Registration with the Land registry Ownership rights and other rights in re How to safely purchase a property Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing

10. Investments in Real Estate (2) • Process of Development and Disposal of Public Real Estate • Scope: stop the process of gradual devaluation of the public real estate • Legislative Decree no. 85/2010 is focused on the creation of a real "federal state property”. • New era of privatization has been announced by the Italian Government 7th Perm Economic Forum - Transfer pricing - 22 April 2011 - Carlo Romano - carlo.romano@cms-aacs.com

11. Investment in Real Estate (3) • Real estate funds • Standstill situation unlikely to continue indefinitely thus opportunities when request will eventually align with expectations of purchasers • Several Italian funds are almost on their expiry date. Foreseen of 5 billion of Euro in real estate free on the market Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing

12. Investing in Italian companies (1) • Establishment of an Italian company • Purchase of a shareholding • Limited liability • Governance and control • Shareholders agreement (no publicity) 7th Perm Economic Forum - Transfer pricing - 22 April 2011 - Carlo Romano - carlo.romano@cms-aacs.com

13. Investing in Italian companies (2) • Joint venture agreements: possible alternatives under Italian corporate law • Restriction to financing Italian companies • Acting as “financial shareholders” • Venture capital/private equity (investment agreements) 7th Perm Economic Forum - Transfer pricing - 22 April 2011 - Carlo Romano - carlo.romano@cms-aacs.com

14. THE ENERGY SECTOR - Investment in PV Plants (1) • The PV Plan markets has been very attractive until 2011 • Lot of projects realized with very high returns • No good news: • The “Development Decree” substantially determines the end of incentives (feed in tariff) for large ground mounted PV plants • Relatively limited opportunities for incentivized ground mounted PV plants (industrial sites, contaminated land) Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing

15. THE ENERGY SECTOR – Investment in PV Plants (2) • Old and New Opportunity • However, market for ground mounted PV plants may revive when “grid parity” is reached: that target may not be too far away in Southern parts of Italy with higher irradiation • Potential opportunities for acquisition of authorized projects (or suitable sites for future development) for future construction of PV plants when prices of components (modules and inverters) will allow economic feasibility of non-incentivized PV plants Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing

16. THE ENERGY SECTOR – Investment in PV Plants (3) • PV GREENHOUSES NOT CAPTURED BY BAN + Feed in tariff for PV greenhouses has been increased (now treated as roof-top projects) • Focus on roof-top PV plants • already an existing trend, likely to continue to growth, probably at faster pace • Residential PV plants also expected to grow significantly, also due to increased awareness of general public of benefits deriving from residential PV generation • Net-metering scheme for residential PV plants likely to create a market for new electricity company (as distributors) 7th Perm Economic Forum - Transfer pricing - 22 April 2011 - Carlo Romano - carlo.romano@cms-aacs.com

17. THE ENERGY SECTOR – Investment in Renewables • Decreto “Clini” (still to be approved) • New regulation implementing 2011 legislation introducing latest EU directive on renewable energy • New decree should eventually provide long-awaited rules on incentives for RES plants • Apply to RES other than PV: • Wind • Biomass • CHP (Combined Heat and Power) • Hydro • Geothermal Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing

18. Project Finance and Infrastructure The current aim of the Italian Government is to realize infrastructures through project finance Scope: simplify the procedure to raise funds in order for private companies to participate in the construction of infrastructures Participation of private companies will be also guaranteed with placement of Project Bonds to qualified investors Law still under discussion

19. Tax audit trends Aggressive campaigns on MNCs and cross-border transactions • Treaty shopping • PSD and IRD • Black list transactions • PE • Transfer pricing • Business restructuring • Permanent establishment Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 19

20. Transfer pricing • Little focus on TP by Tax Authorities historically • Only one (main) administrative practice → 1980 circular letter • Tax inspectors looked at TP as very complex matter • General 100% - 200% penalty regime was applicable • Few cases before the Courts • Negotiations with penalty reduction down to at least 25% • Tax amnesties Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 20

21. What changed over time • Increased attention at OECD and EU levels resulted in: • Enhanced training programs for Italian Tax Auditors • People hired from the business community • Criminal law ramifications not yet clear Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 21

22. Transfer pricing: two instruments to reduce the risk • (Unilateral) advance pricing agreements – APA • Valid only for the future • Introduced in 2003 • Bulletin released on April, 21st 2010 • Documentation requirements (2010) • Valid for the past • 4 years period of assessment from the date of filing of the tax return • General penalty regime (100% - 200%) no more applicable Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 22

23. APA. Procedures, steps, compliance, possible issues and solutions APA in Italy • The procedure ends up, possibly but not mandatorily, with a 3 years binding agreement between the taxpayer and the Italian tax authorities which sets out the criteria and methods for calculating the normal value of the transactions to which the application refers to, or, in other cases, the criteria for application of the concerned legislation. • During the 3 years period the International Ruling Office verifies that the terms of the agreement are complied with and also ascertains whether any changes have occurred to the de facto or de jure conditions which constitute the assumptions on which the clauses of the agreement are based. This activity is carried out also by means of one or more agreed visits to the premises where the enterprise carries on business. Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 23

24. APA. Procedures, steps, compliance, possible issues and solutionsAPA in Italy – inputs from statistics Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 24

25. APA. Procedures, steps, compliance, possible issues and solutionsAPA in Italy – inputs from statistics Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 25

26. APA. Procedures, steps, compliance, possible issues and solutionsAPA in Italy – inputs from statistics Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 26

27. APA. Procedures, steps, compliance, possible issues and solutionsAPA in Italy – inputs from statistics Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 27

28. APA. Procedures, steps, compliance, possible issues and solutionsAPA in Italy – inputs from statistics Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 28

29. APA. Procedures, steps, compliance, possible issues and solutionsAPA in Italy – inputs from statistics Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 29

30. APA. Procedures, steps, compliance, possible issues and solutionsAPA in Italy – inputs from statistics Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 30

31. Paolo Bonolis PartnerBanking & Finance, Infrastructure & Project Finance,Insurance & Funds, Private EquityCMS Adonnino Ascoli & Cavasola Scamonipaolo.bonolis@cms-aacs.com Contact details Milan Via Michelangelo Buonarroti, 39 T: +39 02 4801 1171 F: +39 02 4801 2914 Rome Via Agostino Depretis, 86 T: +39 06 478 151 F: +39 06 483 755 Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing

32. Contact details Carlo Romano, LL.M., Ph.D.PartnerCorporate Tax, International taxation, Transfer Pricing, Tax Litigation, EU LawCMS Adonnino Ascoli & Cavasola Scamonicarlo.romano@cms-aacs.com Milan Via Michelangelo Buonarroti, 39 T: +39 02 4801 1171 F: +39 02 4801 2914 Rome Via Agostino Depretis, 86 T: +39 06 478 151 F: +39 06 483 755 Paolo Bonolis – Carlo Romano Moscow – 2 February 2012 Breakfast briefing 32