FROM THE OFFICE OF PUBLIC AFFAIRS

The Treasury Department announced Tuesday that delegations from the United States and Italy have reached agreement on a new income tax treaty. The new treaty is intended to replace the 1984 treaty currently in force between the two countries.

The text of the new treaty was initialed in Washington, D.C., on Nov. 25, 1998, by Joseph H. Guttentag, Treasury Deputy Assistant Secretary for International Tax Affairs, and Michele del Giudice, Director General of Italy's Ministry of Finance. The initialing confirms a mutual commitment to move forward as quickly as possible to signature and ratification of the new treaty.

The new treaty updates the existing treaty to reflect current tax policies in the United States and Italy. Among other issues, the new treaty addresses the replacement of the Italian local income tax (l'imposta locale sul redditi) (ILOR) by the new Italian regional tax on productive activities (l'imposta regionale sulle attivat… produttive) (IRAP), revises the withholding rates for passive investment income for residents of each country, and strengthens the administrative provisions.

The U.S. Internal Revenue Service announced on March 31, 1998 that the U.S. and Italian authorities reached a temporary mutual agreement under the current treaty regarding the coverage and creditability against U.S. income taxes of IRAP. The initialing of the new treaty ensures that the treatment of IRAP provided in that agreement will continue for an appropriate amount of time to allow the new treaty and protocol to enter into force.

"The new tax agreement reflects the importance of the economic relationship between the United States and Italy," said Treasury Assistant Secretary for Tax Policy Donald C. Lubick. "It is a part of our continuing efforts to ensure that our tax treaty network reflects ever-changing conditions in order to remove all unfavorable barriers to desirable cross-border economic activities."

The text of the new treaty will be publicly available after signature.