Controlled Foreign Company: practical summary for companies and groups with foreign subsidiaries

Legislative Decree No. 209/2023 and, most recently, Decree Law No. 84/2025 have significantly updated the CFC regulations (Article 167 of the TUIR), introducing clearer criteria for the effective taxation test and a simplified method based on a 15% substitute tax. Below are the key points with an operational impact on planning and compliance.

When does the CFC Rule apply?

The rules apply to residents (individuals and companies) who control foreign entities when, in a nutshell, both of the following conditions are met: Effective foreign taxation is less than 50% of what would be due in Italy. More than one-third of the subsidiary's income falls within the so-called 'passive income' category (interest, royalties, dividends/capital gains, financial leasing, financial/insurance/banking activities, low value-added intra-group trading, low value-added intra-group services).

In any case, there is no CFC if the foreign tax is at least equal to 15% of pre-tax profit.

Equivalent minimum national tax (Article 167, paragraph 4-bis of the TUIR)

For the purposes of the tax rate test, the equivalent minimum national tax due in the country of the foreign subsidiary according to the simplified allocation criterion adopted by local legislation is relevant.

Option for the 15% substitute tax (Article 167, paragraph 4-ter of the TUIR)

The resident controlling entity may pay an amount equal to 15% of the net accounting profit of the foreign subsidiary (net of taxes, write-downs and provisions), which is not deductible for IRES/IRAP purposes. Upon payment, the 15% tax rate test is presumed to have been passed and the CFC rules are disapplied for the three-year option period. The option is irrevocable for three financial years and applies to all non-resident subsidiaries; at the end of this period, it is tacitly renewed unless revoked within the specified terms.

Tax credit and coordination with Article 165 of the TUIR
. Both the subsidiary's final foreign taxes and the equivalent minimum national tax are deductible from Italian tax, within the limits of Article 165 of the TUIR, for the portion identified pursuant to the new Article 167, paragraph 4-bis.

Effective date and compliance
The changes apply from the 2024 tax period, with declarative effects in the 2025 Income Tax Return. It is advisable to plan in advance the collection of accounting information from subsidiaries, the verification of 'passive income', the estimation of the Effective Tax Rate and the possible convenience of the substitute option.

Quick operational checklist
1. Map of foreign subsidiaries and verification of control requirements (Article 2359 of the Italian Civil Code).
2. ETR calculation and 15% test considering the equivalent national minimum tax.
3. Analysis of income composition: passive income share > 1/3?
4. Assessment of the advisability/substitute tax option of 15% on net accounting profit and according to the 'all in all out' mechanism.
5. Estimate of deductible foreign credits (Article 165 of the TUIR) and group coordination.
6. Preparation of documentation: three-year option, policy and monitoring.

How we can help
Studio Bampo supports groups with foreign subsidiaries in verifying CFC requirements, ETR simulation and management of the 15% substitute option, drafting policies and supporting documents in the event of audits. Contact us for a preliminary analysis.

Disclaimer
This article is for general information purposes only and does not replace personalised professional advice.