Italy

Country Name Italy
Country Region Western Europe

Economic and Political Environment

The Banking Environment

The Bank of Italy (the Italian National Central Bank) is now part of the European System of Central Banks but has retained the national supervision of the Italian banking system.

The Bank of Italy protects savings and savers through the stability of intermediaries. It promotes the efficiency and competitiveness of the credit system and thereby favours the allocation of the funds raised for the growth of production and the formation of new savings.

The banking system, which has been greatly strengthened in the last decade by privatizations and extensive restructuring, is committed to sustaining firms that are sound and profitable but too small to confront today’s increasingly fierce international competition.

Historically the Italian banking sector has been fragmented and largely shielded from foreign competition. The situation has been changing markedly in the last decade with a substantial acceleration as the Single Market and the European Union has come into being. 

The process of consolidation of the Italian banking industry is on-going, reflecting the need for banks to reach a greater size and a higher efficiency level in a highly competitive international arena. The three largest Italian banks by stock capitalisation were Unicredito Italiano, SanPaolo Imi and Banca Intesa.

With the acquisition of Banco di Napoli in the year 2000 and the merger with Cardine Banca in 2002, the Sanpaolo Group significantly increased its distribution capacity and territorial network, expanding to the North East and the South of Italy.

There are many regional and local banks.  Banks operating nationwide usually consist of multiple mergers. 

The postal system plays an important role in Italy as it covers the whole country with its network. Poste Italiane have created a bank in the last ‘90s, becoming the first big competitor of the Italian banking system in the retail segment.

Foreign currency accounts can be held by residents inside and outside Italy, and by non-residents within Italy.  Credit interest can be paid to residents and non-residents alike, on EUR and foreign currency balances.

Companies still tend to have a large number of bank relationships (even up to10 banks)

This can be attributed to the fact that historically most banks adopts an actuarial posture towards lending, financing only a fraction of a company’s financial needs, often against real or personal guarantees of the owners. 

Contrary to many European countries, transactions for non-resident and resident accounts are processed and priced differently.

Another peculiarity of the Italian clearing system is its very specific value-dating mechanisms.
The BI-COMP system can handle back-valuations up to six days without penalties.
Payment instructions generally indicate a fixed beneficiary value-date which is respected by the beneficiary bank. 

Electronic banking is well-organised with a national infrastructure called Rete Nazionale Interbancaria (“RNI” or National Interbank Network ) supporting the bank-to-clearing activity.

RNI is managed the Società Interbancaria per l’Automazione (“SIA” or Interbank Company for Automation), the Italian banking and payments system technology and services provider. SIA also provides the infrastructure for the Retail subsystem of BI-COMP system and for EBA STEP2.

The “Agenzia delle Entrate” is the entity untitled by the Minister of Finances to manage the control and collection of taxes and to release the Fiscal Code to the individuals and corporations.  It has  more than 300 local offices  nationally widespread which can also give information and assistance to taxpayers.

Request for fiscal code are to be presented by non residents to the local Consulate of their Country or the local Income Taxes Agency Office.

Corporations have instead to ask for the so-called “Partita Iva” which is the fiscal code number.
Those who do not have a stable organisation in Italy have to nominate a fiscal representative who will require the Partita Iva to the local Income Taxes Agency Office.

The fiscal representative is to be nominated by means of a public deed, or registered private deed or again with letter inscribed in a special register at the competent Office located in the same fiscal domicile of the representative.

The tax payment takes place with different modalities and timing depending on the type of tax.  Residents may pay F24,  i.e. the tax payment form by cash or debiting their accounts and also giving the instructions via Internet Banking.

There are both a national and a local corporation tax – IRES and IRAP respectively.  IRES is currently  33 % and IRAP 4.25%.  IRES, that has been conceived on the basis of the European relevant fiscal model, replaces the tax named IRPEG as of the beginning of the year 2004 .

It applies to residents’ worldwide income and non-residents income produced in Italy whereas IRAP is only on Italian run activities income.It is predicted that IRAP will gradually be eliminated.

IRES is paid by corporations (e.g. Società per Azioni, Società a responsabilità limitata, etc) that are resident in Italy and by any other non resident companies which have an administrative office or their activities based in Italy.

Tax on unearned income

Withholding tax of 27% is levied on short-medium and long-term deposits held by residents.

Withholding tax of 27% is applied to interest paid to residents, but not to non-residents as long as the non-resident is not in a tax haven, a double-tax treaty is in place, and the interest relates to a “current account” as defined.

Loan interest remitted to a non-resident is subject to a 12½% withholding tax, owing to 27% if the non-resident is in a tax haven.

No withholding tax applies to dividends paid by residents to residents – but a rate of 27% is applied unless the parent is in the EU or there is a double-tax treaty.

The standard rate of VAT is 20%, with bands at 10% and 4%.

Italy applies the arm’s-length transfer pricing principles as in OECD guidelines.  However, where the related party is in a tax haven, costs related to doing business may be disallowed.  This capitalisation tests are only applied where the loan is made by a non-EU related company, and clearance for any specific transaction can be obtained.

Payroll taxes vary by industry segment, between 2% and 32% of basic wages.

The thin capitalization rule: observations on the final text of Legislative Decree 344/03

Foreword

Of the many new measures introduced by the Tax Reform, the "Thin Capitalization Rule" (hereinafter: thin cap), which came into force on 1/1/04 (Legislative Decree no. 344/03) is certainly one of the most significant and seems destined to have a considerable impact on banking operations.

The objective of the thin cap:

According to the report on the delegated bill, the objective of the thin cap is to counteract the fiscal exploitation of thin capitalization of companies, which is achieved:

• by converting dividends (non-deductible from the company's income) into interest (deductible);
• through tax deduction on interest expenses at the full IRPEG/IRES rate (33% from 2004) whilst interest income is taxed (directly or indirectly) on the lending shareholder at a comparatively more beneficial rate (for example, with a reduced deduction at source).

How the thin cap works:

The thin cap governed by Article 98 of the Testo Unico delle Imposte sui Redditi [Consolidated Law on Income Tax] headed "Measures to counter the fiscal exploitation of thin capitalization" (the full text of the article can be consulted under the heading "Legislation and Forms", makes the returns on financing granted or guaranteed by qualified shareholders or by their related parties non-deductible if they exceed the ratio of 4 to 1 in relation to the net worth value, (more favourable ratio of 5 to 1 for the first year of application of the rule, and thus the year 2004 for companies whose financial year coincides with the calendar year).

In the final version of Article 98, it is stipulated that the limit for the deductibility of interest expense is not applied where the company's indebtedness against all (qualified) shareholders and their related parties or guaranteed by them is considered "physiological" insofar as it is no greater than the minimum threshold of 4 to 1 (5 to 1 for 2004). In order to ascertain the existence of this condition, it is therefore necessary to compare the financing granted or guaranteed by all qualified shareholders with the percentage of net worth value pertaining to the shareholders in question.

If the ratio required in relation to the overall position of qualified shareholders is exceeded, a further check will be needed with regard to the financing and the percentage of net worth relating to individual qualified shareholders. This mechanism is designed to avoid the application of the rule on companies whose ratio between debt financed or secured by qualified shareholders and their related parties and the respective net worth is lower than the ratio considered "physiological", despite the fact that the maximum threshold has been exceeded when simply taking into account the position of the individual qualified shareholder.

If a debt/equity (belonging to the shareholder) ratio occurs which is higher than the ratio permitted, there will be a requalification, for tax purposes, of the interest on the financing (for the part exceeding the ratio fiscally permitted) which, being non-deductible from the company's income, will be treated on a level with dividends pertaining to the shareholder that receives them. Special anti-avoidance measures are aimed at groups to avoid the multiplication of the reference net worth.

It is also specified that non-interest bearing financing granted or guaranteed by qualified shareholders will not be taken into account, provided that the average return on non-interest bearing loans is greater than the official interest rate, i.e. the ECB rate, plus one point. During the TV programme Telefisco, the Revenue Office specified that the average cost must be calculated on interest-bearing financing only. Therefore, given the current ECB rate of 2%, the rate of interest-bearing financing should not exceed 3% in order that non-interest bearing financing does not fall into the ratio for the application of the thin cap.

Cases for non-application of the thin cap

The rule does not apply to companies whose income does not exceed the thresholds set out for the application of sector studies, or to banks and financial companies, with the exception of companies that exclusively or predominantly acquire investments (holding companies). It does apply to financing granted by banks and financial companies to companies other than those indicated above.

The taxpayer will, in any event, have the possibility of requesting/obtaining non-application of the rule by proving that the financing arises from the company's borrowing capacity and not from that of the shareholder and that the loan would therefore have also been granted by third parties and/or without guarantees provided by the shareholder. Strictly speaking and given the initial information supplied during the Telefisco programme, the proof should only concern financing exceeding the permitted ratio, but on this point we are still awaiting full confirmation from the Revenue Office.

In any event, in the majority of cases, this is a type of proof that will be difficult to provide (at the moment there are no further assessment criteria other than the legislative text), which might involve, with responsibilities still to be defined, the intermediaries that grant credits.

The regulatory framework under which the thin cap falls

The tax system already lays down a series of measures designed to counteract phenomenon considered by the tax authorities as tax arbitrage and erosion of the tax base which, indirectly, affect the phenomenon of thin capitalization. In particular:

• 20% deduction on deposits: Article 7, sub-section 1 of Legislative Decree 323/96, the "Manovra Prodi", specifies a discount of 20% on the income from deposits of money, transferable securities and other securities other than shares and similar securities that natural persons and other similar subjects who do not perform business activities furnish as security for financing granted to resident companies;
• 27% discounts on bonds with anomalous return: Article 26, sub-section 1, of Presidential Decree 600/73 specifies the application of the higher discount of 27%, instead of the ordinary discount of 12.50%, if the actual rate of return on securities is, at the time of issue, more than double the official discount rate for bonds (and similar securities) traded on European Union regulated markets or placed through a public offering, or at the official discount rate plus two-thirds in other cases (except for bonds issued by banks and listed companies);
• non-deductibility of interest expense for the issuer of bonds with an anomalous return: Article 3, sub-section 115, of Law 549/95 stipulates that, if bonds are issued with an interest rate higher than the threshold identified in the previous point, any interest expense exceeding this rate will be non-deductible by the company.

Coordination between the legislative provisions

The introduction of the thin cap, based on the government report commenting on the delegated bill, should have led to the abolition of the 20% discount and other measures to counteract  thin capitalization, as referred to above, but the transitional rule contained in Article 3 of Legislative Decree 344/03 has neutralised the 20% discount solely with regard to financing granted by qualified shareholders which exceeds the "maximum threshold".

In particular, the withholding agent continues to apply, under the old rules, the 20% discount on the entire amount of the income whilst the taxpayer is entitled to a tax credit equal to the potential 20% discount applied on the part of the interest "captured" by the thin cap, and thus on the interest relating to the percentage of financing which exceeds the 4-1 ratio (more favourable ratio of 5 to 1 in the first year of application).

Effects on bank lending guaranteed by shareholders

The new rules seem certain to have an indirect effect on banking operations, since these govern the deductibility of the financial expenses incurred in the running of the business. The most sensitive change seems to concerns transactions configured as follows: the bank finances the company; the shareholder guarantees the bank.

It is said, in fact, that if financing granted by the shareholder exceeds the debt/equity ratio of 4 to 1 (5 to 1 for 2004), the interest relating to the excess is reclassified as a dividend, with the result that the liability for interest expense is non-deductible for the company but the income, which constitutes a dividend for the lending shareholder, is partly tax-exempt for the latter (the exemption is 95% for companies and 60% for natural persons). It can therefore be said that, in this case, barring unusual situations, the income "reclassification" does not alter the tax balance between shareholder and company and leads to a modest increase in overall taxation.

However, when the lender is a bank or a third party outside the company and the shareholder acts as guarantor, if the debt/equity ratio exceeds 4 to 1, there is no "tax adjustment" mechanism with regard to the non-deductibility of the interest expense accrued on the excess. The recipient of the interest (bank) is in fact taxed according to the ordinary rules, whilst the guaranteeing shareholder will be penalised by a company profit which is diminished by the tax non-deductibility of interest expense. From an economic point of view, inter alia, there is a significant double taxation insofar as the same interest is subject to the taxation by the recipient whilst it is not deductible by the lender.

It can be added, incidentally, that a similar situation generally occurs for a foreign lending shareholder, insofar as the corresponding foreign rules do not normally make provision for a tax adjustment mechanism for interest income on the loan granted against the non-deductibility of this for the financed company.

Impacts on banking operations

Although taking into account the fact that, compared with the original measures, the scope of application of the rule in question has been narrowed by the amendments introduced in the drafting of the final version of the legislative decree, it should nevertheless be considered that, for companies affected by the thin cap, it is expected that they will need to:
reduce indebtedness or

• increase capitalization,
• in order to fall under the "normal" debt/equity ratio. Both choices, clearly, have a potential effect of "disintermediation" with regard to banks.

Furthermore, whilst still referring to the basic structure of bank lending guaranteed by the shareholder, it is feasible that the effects of the thin cap might be alleviated by acting on the side of the guarantees. It is therefore possible that choices regarding financing structures will favour a number of trends such as, for example:

• the reduction/rejection of the qualified shareholder's guarantees with regard to the "excess" part of the financing (with "collateral" effects, all of which are to be assessed, in terms of an increase in the credit risk, rate of return and greater administrative complexity of credit management);
• the replacement, including partially, of the personal guarantees received from the shareholder with guarantees on the company's assets (movables and immovables) with a tendency towards forms of financing secured by mortgages or towards leasing operations.

In this regard, as previously stated, the thin cap does not apply when the taxpayer proves that the amount of the excess financing is justified by its own borrowing capacity and that, consequently, these would have also been granted by independent third parties on the basis of the shareholder's equity being the only security; the scope of this clause, as emphasised previously, is highly uncertain and it cannot be ruled out that, in the future, the intervention of intermediaries will be required to "certify" the borrowing capacity of the company (although it is unknown with what methods and with what responsibilities) .

Possible impacts of the new thin capitalization rules on a cash pooling structure:

While waiting for final explanations from the Agenzia delle Entrate the Italian Banking system reasonably retains that the end-of-day zero balancing will not be impacted by the new rules. On the other way around, should a company’s group have a notional pooling scheme in a country when this is not prohibited, banks believe that the thin capitalisation will instead produce some effects.

All resident–to–non-resident transactions and viceversa above EUR 12,500 must be reported  for statistical purposes to the Italian Statistical Office (Ufficio Italiano Cambi)  on the CVS form (“Comunicazione Valutaria Statistica”) and transactions exceeding the a.m. amount have to be attributed a reason code corresponding to the reason of payment.

Bank can issue this form on behalf of their customers.  Lifting fees of up to 0.15% can apply on payments over this amount.

Money Laundering: the European Directive on prevention of the use of the financial system to the purpose of the money laundering (fully integrated by Italian Law no. 197 dd. 5/7/1991 and subsequent amendments) requires that all details related to the ordering party are registered by the beneficiary’s bank.

Furthermore, the full indication of the beneficiary’s name is one of the prerequisites of a payment order according to the Italian Civil Code.

None.

The use of cheques among individuals is dropping in favour of card-based payments, which has been extensively encouraged by the Italian Banking Association, thanks to the reduction of charges levied to cardholders.

A widespread ATM and POS network is available in the whole country.

As far as corporate payment systems are instead concerned, the wire transfer is the most frequent one, followed by electronic collection systems, cheques  and drafts.  Corporate customers often send their payment instructions through the electronic workstation or the internet banking of  their own Bank.

Major Banks can provide either mono or multi-bank solutions. If a multi-bank solution is adopted then the customer can receive electronic reporting pertaining to accounts maintained at other domestic Banks and send electronic payment/collection instructions to the debit/credit of same accounts at other Banks.

Customers have access through their Bank/s to the Clearing Systems (domestic and/or cross-border).

There are  two main categories of cheques:

• bank cheque
• bank draft

A bank cheque (assegno bancario) is drawn by the debtor in favour of the creditor on its Euro/foreign currency account at a branch of an Italian Bank. The account number is indicated on the cheque.
The value of the cheque is debited from the customer’s account on the same day of the issue.
Company cheques may also be released with the indication of the company’s logo and name .

Pursuant to Italian Monetary Regulations (last amendment dd. May 14, 1990) and fiscal and civil laws actually in force, we summarise here below, for your guidance, the prerequisites for the cheque to be considered valid and regular:

- all parts of the cheque must be filled in, including date and place of issue; stale-dated and post-dated cheques are not accepted;

- the cheque to a named person should bear full details of the beneficiary (name  and surname or    company name). This rule does not apply for cheque to bearer which is payable to any person in possession of the cheque;

- transferable cheques can be transmitted in Italy by subsequent endorsements. In this case the endorser may alternatively utilise one of the following formulas:

full endorsement:
“E PER ME PAGATE ALL’ORDINE DI  (Pay to the order of)
............................. (name of the endorsee)” together with his signature

or

blank endorsement with his signature only.

At the time of the negotiation  the beneficiary or the endorsee has to endorse the cheque.

- according to Law regulations No. 197 of 5/7/91 and subsequent modifications,   cheques issued by Italian resident for amount higher than Euro 12,500.00  must compulsory bear  the non transferable clause and the name of the beneficiary in full, even if it corresponds to the issuer.   
In this case the endorsement should be expressed by the beneficiary as follows:

PAY TO THE ORDER OF ....…………....(Name of the negotiating Bank)
   VALUE FOR COLLECTION     
  .....................
(Beneficiary's endorsement)

A bank draft  (assegno circolare)  is issued by a bank at the request of a customer. It is drawn on the drawer’s bank rather than the customer’s own account. For this reason the return of an unpaid bank draft is restricted to some cases (i.e. stop payment for cheque stolen/lost, etc). Cleared funds are  paid by cash or debited from the customer’s account. A bank draft  is payable at sight.

The main prerequisites to be considered valid and regular are:

• denomination of  “assegno circolare”
• promise to pay the indicated amount
• full details of the beneficiary (name  and surname or company name);
• date and place of issue
• the signature of the issuer  bank

In order not to lose the right of acting the recourse the bearer has to negotiate the bank draft  within 30 days from its issue.  The prescribed deadline to recourse towards the issuer is three years from the issue date.

Rules applicable to bank cheques with reference to endorsement, crossing, payment, protest, recourse and prescription also apply  to bank drafts.  A bank draft may bear the non transferable clause and be crossed as well. The endorsement towards the issuer bank estinguishes the bank draft.       

Cheques might be crossed. A crossed cheque  has two parallel bars on the front side and can be:

• general if no mention is stated between the bars or if the mentions “banca” or “banchiere” (bank or banker) or similar are added. The drawee bank will honour the cheque only in favour of one of its customers or in favour of another banking institution which negotiates it and claims for reimbursement.
• special if the name of a bank is stated between the two bars. The cheque can then be paid only by credit onto an account opened at the bank which name is specified on the cheque.

N.B. The restrictions inherent in the crossed cheque allow to limit the risk of theft.

Negotiation

Cheques in Euro and/or foreign currency issued by Italian residents may circulate abroad.
Cheques may be negotiated cash or credited onto a bank account “under usual reserve”. The items are normally negotiated by the customer at the branch where he maintains the account: cheques are normally accepted  even if not drawn on the same bank/branch. No stamp duty apply on cheques.

In Italy  there is no cut-off time prescribed for the beneficiary to negotiate customer cheques.
Cheques might be paid cash to customers well known by the branch/bank or preferably credited onto the account. However, a cheque is paid cash at  Sanpaolo Imi Group’s counters to an occasional customer if its amount is not exceeding Euro 1,500.00 and its validity is less than one year.

The cheque deposit may be made at any branch within the bank.

The credit value date applied on the account strictly depends on the type of cheque (i.e. drawn at own branch or at another branch, drawn on other banks, out of town cheques).

It is not usual practice to accept cheques for collection sent by mail by unknown customers even if drawn on the same Bank. It is instead possible to collect items sent by mail by customers (even located abroad) to be credited onto their account with his bank in Italy.   In this case we recommend to remit cheques to the branch in charge of the account relationship. We normally prescribe the use of our forms  but the use of the customer’s  forms can also be envisaged.

In case of a high number of cheques a Lock Box service is preferable. This service is only available for non resident companies at Sanpaolo Imi Group.

Risks

The principal risk arising from the circulation of cheques is linked to theft and fraud.  The Italian Banking Association  prescribes the compulsory use of cheque forms with a code line written in special characters, i.e. CMC7 for security  purposes.

The cut of the left corner of the cheque after negotiation has also being adopted by the Banking System to eliminate the risk of a double negotiation.

The use of the non transferable clause might be recommended to minimise possible tampering.
We remind again that according to Law regulations No. 197 of 5/7/91,   cheques issued by Italian resident  for amounts higher than Euro 12,500.00 must compulsory bear  the non transferable clause and the name of the beneficiary in full, even if it corresponds to the issuer.   

Cheque Processing

There are two cheque clearing processes in Italy:

• a procedure for large-value cheques (over EUR 3,000.00) and large-value banker’s drafts (over EUR 12,500.00) called the “Recapiti Locali” and which is one of the subsystems of BI-COMP. There are two Clearing Houses for out of town cheques (Stanza fuori piazza) in  Milan and in Rome.

That is why all cheques are now performed under this environment (Sanpaolo makes use of service companies to speed up collection procedures). The system is run electronically and also unpaid items are reported by electronic flow.

and

• a procedure for low-value cheques (up to EUR 3,000.00) and banker’s drafts (up to EUR 12,500.00) which are truncated and cleared through the other subsystem of BI-COMP – “Rete Dettaglio”.

Details of the cheque are then input to the clearing system by the negotiating bank and this information is electronically processed against the debtor’s account.

Stop payment

Stop payment can be placed provided that the cheque has not already been paid; although this procedure will only be effective after the hereinafter detailed deadlines to issue protest  have been elapsed.

The stop payment request is normally accepted for formal irregularities discovered after the issue of the cheque or in case of theft and loss of the item. Should one of these cases occur,  the incident must be reported to the territorially competent Police Office and the Police statement has to be presented to the drawer  bank. It is then possible to proceed the invalidation petition by presenting the above mentioned statement to the Judge of the Court of the place where the cheque is payable or in alternative to the Magistrate’s Court (Pretura) of the place where the petitioner resides or has his “habitual”  abode.

Protest

Deadlines to issue protest or the relevant substitute protest declaration prescribe two business days after the date of issue as per following rules:

• 8 days from date of issue when the cheque is payable in the same Italian place of issuance (town cheque);
• 15 days from date of issue when the cheque, issued in an Italian town, is payable in an Italian town other than the place of issuance (out of town cheque);
• 20 days from  date of issue when the cheque is issued in a Country other than Italy, where it is payable, when both countries are in the same continent (in this regard, it is pointed out that cheques issued in a Mediterranean coastal country and payable in Italy are considered as issued and payable in the same continent);
• 60 days from date of issue when the place of issue  and the place of payment are in different
   continents.

As from the coming into force of Law no. 386 of 15/12/90 ABI - Italian Banking Association has decided to ask for protest (or equivalent certificate) for checks issued totally or partially without sufficient funds even if they bear the clause “without charges” or  “without protest”. This clause only means that the bearer of the cheque is released from protest obligation.

However, in case the prescribed terms have elapsed and the cheque is not honoured by the drawer bank due to lack of funds or other causes  prescribed by the Law, the Bank has to promptly inform the local Authority (the “Prefetto”).

Pursuant to the Italian Cheques Law (art. 45), the bearer maintains his rights towards the drawer and the endorsers jointly or severally  notwithstanding that the bank cheque was not promptly presented and protest or similar notification was not made.

These rights, pursuant to the following article 75 of the same Law, prescribe six (6) months after maturity of the presentation deadline.

By means of the action of recourse the bearer can claim the unpaid cheque amount, the overdraft interest and  the protest or the relevant substitute protest declaration charges.

The cheque is a document of execution and its non payment generates consequences on the private property of whom dishonour the cheque.

Finally, the protested person/company is registered in the Protest Bulletin which can be inspected by the public.

Due to its complexity, we have attempted to provide you with a general overview of the Italian cheque procedures, explaining the main features, without covering it in its entirety.

C.A.I.  Centrale Allarme Interbancaria

In 2002 the reform of the regulation related to administrative sanctions for  banking and postal cheques  came into force .

The objective of this new regulation was to raise the level of the service quality rendered to customers adopting several measures in order to grant major trust on cheques thus increasing the security level.

With the intention  to bound the circulation of items potentially resulting unpaid, it was introduced a unique central data base at Banca d’Italia, which contains all the information about individuals whom the Italian Banking system revoked the right of issuing banking/postal cheques and is also a repository with details of stolen or lost cheques.

The name of this data repository is C.A.I. Centrale Allarme Interbancaria (Interbanking Central Alert). Banks are linked electronically to it and they are obliged to report the above mentioned information and to make queries to the black list any time they have to deliver a cheque book to new customers in order to verify if those people might be interdicted to the  issuing of cheques.
The input of the name of resident or non-resident customer in the black list occurs when a cheque is  issued without authorisation or in case of lack of funds and the cheque is negotiated  on due time but not paid within 60 days following to the prescribed cut-off time for presentation.

Banks can registered customers, either residents or non residents, directly into the system even if the protest of the cheque has not been levied.

In the future C.A.I. will be similarly adopted also for debit and credit cards.

Cheque book for non residents

According to Law Decree 507/99 and related laws the non-resident account holder requiring a cheque book has to provide the Bank with the following data:

1. the “elected domicile”, i.e. the address where any and all notices, provided for under the law, must be sent in Italy or abroad;
2. the Italian fiscal code which can be required at the Consulate or the local Income Taxes Agency Office.

Cheque collection

Low-value cheques and banker’s drafts (around 80% of total cheques processed) are handled through a truncation procedure, implemented in 1990, which replaces physical delivery with electronic inter-bank messages.  Data on low-value truncated cheques are conveyed through the RNI at night (day D) and are settled through the clearing system the following day (D+1).  Dishonoured cheques must be reported within the following three days (D+4).  In July 1999 the Post Office also adopted this procedure for postal cheques.

Despite these improvements, the time it takes for banks to credit funds to their customers remains significantly longer.  The large number of days required for the availability of funds on customers’ current accounts remains a major concern with regard to cheque payment services in Italy.  Hence, cheques are still perceived as a risky means of payment involving higher levels of administrative costs and more implicit pricing than other non-cash payment instruments.

Starting from 15 October 2003 came into force a project denominated “Patti Chiari” promoted by the Italian Banking  Association and agreed by the major Italian banks aimed at improving relationship between banks and customers, specially individuals and small companies. One of the eight initiatives of this project  involved the certainty on cheque availability.

Customers who make and receive payments by cheque every day can now count on defined, guaranteed legal availability of the amounts deposited. The number of working days between presentation of the cheque for payment and the legal availability of the sum have been  reduced  up to  8 working days maximum in case of domestic cheques drawn on other Italian banks.

Sanpaolo Imi Group terms for availability of funds are:

EURO BANKER’S DRAFTS  DEPOSIT 

• issued by Sanpaolo Imi Group  3 days
• issued by other credit institutions  8 days

EURO BANK CHEQUES DEPOSIT 

• drawn on Sanpaolo Imi Group same Branch     1 day
• drawn on other Sanpaolo Imi Group branches in the same  town 4 days
• drawn on  Sanpaolo Imi Group out of  town  branches 6 days
• drawn on other credit institutions  8 days
• cheques drawn on foreign Euro account (i.e. in the name of non residents) 17 days

Cheque disbursement

Cheques are usually debited with the value date the same as the date the cheque is issued. 
Writing post-dated cheques is forbidden. 

In Italy there are two categories of drafts:

1) Bill of exchange

It is a signed written order issued by the creditor and addressed to the drawee to pay a specified  sum of money at sight or at a specified maturity date.
The main prerequisites to be considered valid and regular are:

- denomination of  “cambiale”
- order to pay the indicated amount (written in figures and letters)
- drawee name
- indication of the maturity date. The maturity date may be expressed in one the following formula:

• date bill
• at a certain time (i.e. three months from the invoice date or 15 days from the bill of lading date)
• at sight
• sight bill

 If no indication is given the bill of exchange is considered “at sight”. 

• place where the bill of exchange is payable
• name of the payee (i.e. the drawer itself or a third beneficiary. In the first case the bill is issued with the indication “all’ordine mio proprio”, i.e. “to the order of myself” ) 
• date and place of issue
• signature of  the drawer
• fiscal code of the drawee

The bill of exchange may be transferred by endorsement even it the item has not been issued “to the order of”.

The bill of exchange may be presented for acceptance to the drawee until the maturity date. The acceptance is made by writing the word “accettato” (accepted) signed by the drawee together with indication of his/her fiscal code. In case of non payment the drawer may exercise the action of recourse.

The payment of the bill of exchange may be guaranteed totally or partially  by a third person. This guarantee is given with the word “per avallo” and must show the name of the person in favour of whom it is given, otherwise it is intended in favour of the drawee. The guarantor assumes all responsibilities of the person he guarantees. This clause is normally requested by the payee who does not trust the drawee.

The bill of exchange is payable at the maturity date or  at maximum by 12.00 noon of the second working day following the maturity date.

The non acceptance or the totally or partially non payment of the bill of exchange determines the issue of protest which triggers  the same effects already described for cheques.
The bearer can be released from protest obligation if the clause  “without charges” or “without protest” has been written by the drawee.

The bearer can exercise recourse towards the endorsers and the drawee in case of non payment at maturity or in case of non acceptance before the maturity.

In case of  acceptance the bank by which the bill of exchange has been discounted or to which it has been sent for collection has the right to have recourse.

Promissory Note

It is issued at the initiative of the debtor in  favour of  a specified creditor or to the bearer.
The main prerequisites to be considered valid and regular are:

- denomination of  “pagherò”  (promissory note)
- promise to pay the indicated amount (written in figures and in letters)
-  indication of the maturity date. The maturity may be expressed in one of the following formulas:

• date bill
• at a certain time (i.e. three months from the invoice date or 15 days from the bill of lading date)
• at sight
• sight bil

If no indication is given the promissory note is considered “at sight”. 

• place where the item is payable
• name of the beneficiary
• date and place of issue
• signature of  the drawer
• fiscal code of the drawer

The promissory note may be transferred by endorsement.

It is also payable at the maturity date or at maximum by 12.00 noon of the second working day following the maturity date.

Stamp duty

According to the current fiscal Law drafts are subject to payment of  stamp duty as follows:

domestic drafts:  12 per thousand

export :  for drafts issued in Italy 9 per thousand. 
  
For drafts issued abroad 12 per thousand. Exception: stamp duty may be reduced up to 6 per thousand if drafts have been already stamped abroad provided that a convention has been established on a bilateral basis with the country of the drawee.

Import:   12 per thousand. Exemption: stamp duty may be reduced up to 6 per thousand if drafts have been already stamped abroad provided that a convention has been established on a bilateral basis with the country of the drawer.

There is no prescribed term to deliver draft before its maturity. It is however understood that if the maturity date  is very closed  protest might no longer be issued.   A unpaid draft for which protest can not longer be issued  may be presented for collection in a second time. In this case the payment becomes “at sight”.

Protest

The prescribed deadlines to issue protest are the following:

non acceptance   the last available term is the first working day prior to the maturity date

 non payment        within 12.00 - noon of the second working day following the maturity date

The protested individual/company is registered in the Protest Bulletin  issued by the local Chamber of Commerce which can be inspected by the public.

Actions

The beneficiary of an unpaid draft may obtain the payment by means of one of the following actions:

direct action:    against the principal debtor within 3 years from the      maturity date of the draft.
The unpaid draft is given to the Judicial Officer who asks the principal debtor to pay within 10 days. In case of non payment he will proceed the distraint of goods and after 10 additional days the goods will be sold by public judicial auction to possibly cover the amount of the unpaid draft plus charges incurred.

Recourse action:   against the endorsers or against the drawee and the guarantors of the bill of exchange within 1 year from the maturity date of the draft.

It can be performed by judicial act similarly to the first one or by issue of a new at sight draft called “rivalsa”  made by the beneficiary towards the endorser/s for the amount of the unpaid draft plus protest fees, arrears,  stamp duties and sundries.

The “rivalsa” may be protested in case of non payment as well. The endorser who pays the “rivalsa” must exercise his rights towards the other endorsers within 6 months.

Annulment

In case of theft or loss of a draft the beneficiary has to urgently instruct the debtor not to pay the item. He will then revert to the Judge of the Court for the annulment of the item. As soon as the decree for the annulment of the draft is published a new draft will be issued in substitution of the first one. The new maturity date will be established at 30 days after the sentence if the original maturity has already elapsed.

Processing at Sanpaolo Imi Group

We normally prescribe the use of our forms to remit drafts but the use of the customer’s  forms can also be envisaged.

The debtor  is informed about a draft to be paid by phone. A copy of the bill presented for payment is also forwarded to him.

Reporting on credited/debited draft is made under the same rules applicable to cheques in relation to resident/non resident account  (see paragraph above).

Drafts are normally discounted at the Bank.

The application of stamp duties discourages the use of  drafts as a method of payment so that drafts are usually utilised when the creditor does not trust the debtor.  As a result  the majority of domestic payments are processed  in Italy through the electronic portfolio system which includes  Ri.Ba., R.I.D. and M.AV.. 

There are two clearing systems in Italy: one based on RTGS system and the second one based on Net scheme.

BI-REL is the RTGS system for handling financial payments (GEC) and commercial payments (BOE cross-border commercial payments and BIR high value domestic commercial payments exceeding Euro 50,000.00).

BI-COMP is the domestic payment system based on net scheme.

Additionally, EBA is also one of the payment systems used between EURO1, STEP1 Italian Banks to forward payments in EURO for non resident transactions that can not be handled in the domestic system. 

BI-REL (Banca d’Italia Regolamento Lordo) is the national TARGET-linked RTGS system.
• BI-REL has around 570 participants of which approximately 170 participate directly.
• Using BI-REL, participants can settle the following transactions on their euro-denominated settlement accounts with the Banca d’Italia exceeding EUR 500,000.00: financial and commercial payments, monetary policy operations; cash leg of securities transactions; multilateral balances generated by the clearing system for domestic retail payments; daily cash margins on derivatives.  There is no threshold for non-resident or cross-border payments.

• The operating hours of BI-REL reflect those of TARGET, i.e. 07:00-17:00 CET, with an extra hour for interbank payments.
• BI-REL settles transactions on a same-day basis and with immediate finality.
• All BI-REL participants can access BI-REL via SWIFTNET which links system participants directly to the Banca d’Italia.
• BI-REL links to TARGET in order to effect cross-border payments in EUR with immediate finality.
• BI-REL effects end-of-day settlements for payments cleared in BI-COMP.

• BI-COMP (Banca d’Italia Compensazione) is a net settlement system for low-value payments  divided into two sub-systems:

  • Rete Dettaglio – the Retail subsystem, an electronic low-value clearing system managed by SIA
  • Recapiti Locali – the Local Clearing subsystem, a paper-based clearing system managed by the Banca d’Italia.
• The channel for banks to access BI-COMP is the RNI
• The system cut-off time is 12:00 noon
• At the end of 2001, BI-COMP had 210 direct participants and approximately 500 indirect participants.

Rete Dettaglio

• clears low-value electronic transactions
• credit transfers below EUR 500,000.00 (EUR 12,500 for non-resident transactions)
• direct debits (RI.BA. and RID – see below)
• ATM and POS transactions
• low-value truncated cheques below EUR 12,500.00 and bankers; drafts below EUR ,000.00
• includes a set of specific procedures for different types of payment.
• These procedures are operated by four service bureaux, which connect the major banks through the RNI.
• The net balance for each procedure is calculated by each service provider and then the information is forwarded to BI-COMP.
• The standard clearing cycle for credit transfers is two days

Recapiti Locali

• handles cheques exceeding EUR 12,500.00 and banker’s drafts exceeding EUR 3,000.00
• All payments are centralised in the Rome and Milan clearing houses
• The normal clearing cycle is two days. 

It is the most popular collection service for bank receipt fully automated.
It is issued by the supplier and sent to the customer through the banking network, it is used for one time payments and is not pre-authorised by the debtor.

The debtor’s bank notifies his client who  at maturity gives a written or an electronic authorisation to its bank to pay the Ri.Ba..  If he does not pay within two days of due date, an electronic notice of ‘unpaid’ is sent to the creditor’s bank.

Ri.Ba.s have expiry dates but ‘unpaids’ carry no legal penalty (in France unpaid LCRs get a Bank of France notation). 

Ri.Ba. is fully automated collection instrument and is widely used by all types of companies.   Other advantages of Ri.Ba. are automatic reconciliation with invoices and borrowing rates lower than overdraft.  In fact,  Ri.Ba. is one of the major form of trade financing.

Ri.Ba.’s operating rules and pricing often baffle non-Italians.  Presentation to banks takes place 10-15 working days before maturity in the form of ‘SBF Salvo Buon Fine’ (under usual reserve)  or Dopo Incasso (after collection).  In the first case, Ri.Ba.s are credited immediately with value date at maturity + “n” working days and can be used against a line of credit in order to back-up possible non-paids.

With Dopo Incasso, Ri.Ba.s are credited only when collected.  Ri.Ba. service is also available for non resident companies. The items are credited onto a special account in the name of the Customer and they are reversed onto the Customer’s main account when the value dates are cleared. .

Non-paids are known average 4-6 days after maturity and are debited with value date at maturity.
 
To optimise credit utilisation and borrowing rates, a flexible form of financing is popular where Ri.Ba.s are used as collateral for drawing in c/a at preferential rates up to the amount outstanding. 

In general, direct debit is the simplest collection instrument but different legislation and operating rules in each country make it difficult to create a ‘European’ cross-border direct debit (the European Committee for Banking Standards has a working group on the subject and EBA is going to create a clearing mechanism for cross-border direct debits).

RID, the local version of direct debit, is widely used by individuals to pay for utilities, instalment credit, insurance premiums, etc., but is also gaining ground in B2B payments. 
Beyond the agreement between buyer and seller RID requires a signed authorisation by the debtor to his bank for acceptance.

A recent procedure gives the seller responsibility for getting the authorisations signed and handed over to his bank who distributes them in electronic form to the debtors’ banks.  The debtor’s bank sends back the creditor an electronic message confirming or refusing the acceptance of the position, usually within ten working days of maturity.

Commercial RIDs can be ‘irrevocable’ or ‘revocable’ by the debtor within five days of payment whereas RIDs for utilities payments are always revocable within five days after the maturity date.

RIDs’ presentation to banks takes place about 10-15 days before maturity, usually in the form of  ‘Salvo Buon Fine’ (under usual reserve).  In this case,  RIDs are credited immediately with value date “n” working days after maturity and can be used against a line of credit.

If the debtor’s bank is unable to transfer credit to the creditor’s bank (e.g. because of insufficient funds) it must send an electronic message concerning the unpaid item. 

Other collection methods

MAVs are ‘invitations to pay’ issued by the seller (or the bank) directly to the buyer who, at maturity (or some days after) can settle it at any bank and/or postal office.  Unlike RI.BA.s and RIDs, that are channelled through the banking network, MAVs must be sent by mail to the buyer’s address.

Bank bulletins are a new instrument similar to postal bulletins.  A form with pre-coded OCRB or bar-code information is sent by mail to the buyer/borrower who, at maturity, can pay at any bank.  Postal bulletins are widely used by corporations selling directly to consumers.  Costs, to be announced, should be similar to postal bulletins, i.e. for the issuer, a commission of 0.18 – 0.36 euros per bulletin (depending on volume) plus a commission for electronic reporting of collections.

At the end of 2002 there were 24,5 million debit cards in circulation for withdrawals through a nationwide network of ATMs, of which 23,5 million could be also used to execute payments through a nationwide network of POS terminals.

ATM transactions are processed through the retail sub-system and settled through BI-COMP.

The use of debit cards for withdrawals at ATMs is widespread and progressively growing.  In 2002,  607 million withdrawals (25 per card) were executed compared with approximately 499 million in 1999.  The share of ATM transactions grew from 70% of total cash withdrawals in the banking system in 1999 to 75% in 2002.

Moreover, the percentage of debit card transactions performed through POS in southern Italy is almost half that of northern Italy; the same discrepancy was noted in 2002.

The use of debit cards at POS terminals is expanding rapidly.  In 2002 over 526 million such transactions were effected compared with 248 million in 1999, thus representing an average annual growth of 28,48% over the 1999-2003 period.  The number of transactions per card rose from 12,4 in 1999 to 23  in 2002.  PagoBancomat is the major nationwide debit card network. 

At the end of 2002 the PagoBancomat trademark was shared by some 618 banks which liaise closely; they can compete in offering payment services to their own customers, cardholders and retailers. 

The main features of this system are as follows: 

1. the provision of a common infrastructure; and
2. a single trademark and a common set of rules and standards established by the ABI and the Convention for the Management of the Bancomat Trademark (CO.GE.BAN), which are responsible for organising and operating network facilities.

Credit cards are not widely used in Italy in comparison with other European countries; however, in recent years growing competition among suppliers of payment services and the change in consumers’ habits have increased both the number of credit cards and their usage. 

At the end of 2002, 21,8 million credit cards issued either by banks or non-bank companies (travel and entertainment cards) were in circulation, compared with 12,3 million in 1999.  Nevertheless, in 2002 only 53% of credit cards in circulation were used at least once over the year.  In the same year, the number of credit card operations totalled 358,3 million, or 16,5 operations per card in circulation.

A more widespread use of credit cards is still being hampered by ATM cash withdrawals and gaps in services in various parts of Italy.  In 2002 the amount of ATM cash withdrawals as a share of GDP per capita represented around 9,25% compared with 2,69% for credit card expenditures.

In the area of credit cards there are two main initiatives.  Since 1968, a single bank has been able to issue a card linked to the Visa circuit.  Since 1985, it has been possible for cards to be issued on a co-operative basis by ‘Servizi Interbancari’, a company owned by approximately 140 shareholders, most of which are banks. 

Around 800 banks are currently taking part in the latter scheme, which represents the major nationwide credit card network (both in the issuer’s and the acquirer’s market) and is linked both to Visa and MasterCard.  In recent years, a number of individual banks have launched proprietary cards directly linked to international circuits.  Travel and entertainment cards are issued by American Express and Diners Club.

Since June 1999 several schemes sponsored by banks have been submitted to the Banca d’Italia for evaluation; these new products have called for an overall assessment of the security, transparency and anti-money laundering aspects of electronic money transfers.

With reference to the security of payments via the open network, a survey of the leading issuers of credit cards revealed that in the first two months of 2000, 10% of credit cards in circulation were used at least once for Internet, mail or telephone purchases of low-value goods. 

Moreover, research carried out on the “charge-back” facility revealed that around 60% of total charge-backs are processed for remote credit card transactions (the internet, MO/TO) and 99% of the latter are for “non-authorised” transactions. This  took the international circuit to make new rules and new systems in order to reduce this kind of problem as   Verify by Visa e Security code of Mastercard. 

Italian Bank System Association launched in 2001 a new service called Bankpass Web, which is a virtual wallet to do payment on internet with the domestic debit cards  Pagobancomat and credit cards, without entering the card number of them in the website.

According to a study carried out by the Banca d’Italia, in February 2000 less than 130 banks were offering their customers payment services through the Internet.  In relation to the overall supply of banking services via the network, which consisted mainly of securities trading on behalf of customers, payment system operations accounted for around 13% in value and 21% in volume.

In recent years  both the ATM and POS networks have grown rapidly.  ATMs numbered 37,355 at the end of 2002; the number of ATMs per branch rose from 1.11 in 1999 to 1,25 in 2002.  Currently all ATMs’ bank are interconnected within the nationwide network (Bancomat).  All banks located in Italy which comply with Bancomat’s rules are eligible for membership.  

POS terminals totalled 818,710 at end-2002, compared with 435,000 at end-1999.  However, their use is still limited (1,081 operations per terminal per year) in comparison with other industrialised countries and domestic ATM cash withdrawals (around 16,243 operations per ATM terminal per year at end-2002).  Most POS terminals are linked to the PagoBancomat network.

Electronic Banking

From 1984 to 1994, electronic banking was dominated by non-banks like Geisco and Intesa (IBM) offering multibank services on their networks.  Next, banks developed proprietary PC-based solutions (called ‘remote banking’) and started competing fiercely.

ABI (Italian Banking Association) developed a common standard for data exchange in interbank  network (RNI).  Under the CBI (Corporate Banking Interbancario) scheme, the customer, through a lead bank, sends domestic/cross border transfers, collection orders, standing orders, mass payments and receives balance information to/from all other CBI banks.  CBI has slashed the cost of electronic banking and made it popular, with more than 240,000 corporations connected.  Foreign corporations can also connect to CBI.

Internet banking and digital signature

CBI is a store-and-forward procedure on a traditional network and does not yet support on-line services and digital signature.  The Internet revolution will deeply affect CBI;  ABI and SIA are busy creating a new secure TCP-IP infrastructure and new rules.

Six hundred banks are present on the web:  75 per cent of these sites allow transaction initiation for orders, collections or payments but e-payments represent less then 10 per cent of total flows.

According to the Bank of Italy, only 20 per cent of these web banks offer a high level of security on the transactions.

Italy was the first country to approve legislation for digital signature back in 1997, but technical implementation required more than three years.  Today, 12 Certification Authorities have been authorised by AIPA (Authority for Information Technology in Public Administration) and are ready to ‘interoperate’, i.e. validate each other’s certificates.

Liquidity Management

The main task for the treasurer is to concentrate funds into one bank.

The techniques for concentration across banks are assisted by the existence of the RNI platform and the work that the ABI has done to enable data exchange through it (see “Electronic Banking”).

An end-of-day zero-balancing structure is only possible among accounts in the name of companies belonging to the same Group but kept at the same Financial Institution.

Notional pooling is inhibited as compensation between debit and credit positions without material funds movement is not allowed for fiscal reasons.

There are no restrictions on zero-balancing between residents’ and non residents’ accounts.
The Pool leader account is to be in the name of the resident or non resident treasurer, i.e. the financial entity owning or controlling the voting stock of the affiliate/subsidiary or simply managing the financial activities on behalf of the Group.

The Pool Leader may provide for payment services to the other affiliates/subsidiaries as well as inter-company loans. Such list of activities are included in art. 106 – 1st paragraph – of the Bank Law (Legislative Decree no. 385 of the 1st Sept. 1993).

The Pool Leader has to ask for registration in the special section of the general list of the Financial Intermediaries held at the UIC (Ufficio Italiano dei Cambi).
 
Account balances can then be zero-, target- or threshold-balanced on a daily basis, or for longer periods, to a non-resident corporate account at the same bank with their original value date or same-day value.

Movements between residents and non-residents in a ZBA will have to be reported on the CVS form but this is managed by the Servicing Bank. Money laundering obligations are performed by the Bank as well.

Different fiscal schemes on inter-company interest apply with respect to the residence status of companies participating in a cash pooling scheme.

We can have four cases:

Pool Leader and affiliates/subsidiaries are resident in Italy:

Interest on intra-group loans is not subject to witholding tax. It instead contributes towards the tax base of the receiving company for the application of the relevant income taxes.
 Pool Leader is a non resident while affiliates/subsidiaries are:

Interest paid by the Pool Leader is not subject to the witholding tax. It instead contributes towards the tax base of the receiving company for the application of the relevant income taxes.
If the witholding tax is levied on interest in the State of residence of the Pool Leader this can be reduced in accordance to the Double Tax Treaty entered into between this country and Italy.
Interest paid by the local  companies to the Pool Leader is not subject to witholding tax.
Pool Leader is resident while affiliates/subsidiaries are not:

Interest paid by the resident Pool Leader to foreign companies is subject to 12,50% witholding tax . This tax can be eliminated or reduced in case of international conventions against double taxation.
Interest by foreign affiliates/subsidiaries is not subject to withholding tax but are taxable as global company’s income.
Earn interest on the Pool Leader account is considered as part of the global company’s income and so subject to relevant taxes (IRES).
Pool Leader and affiliates/subsidiaries are both non resident

Not subject to the Italian fiscal law.
Inter-company loans’ earn interest are VAT exempted, even if the issue of the invoice is compulsory. 

In a cash pooling scheme  costs and interest are calculated on the Pool Leader account only.

Credit lines are granted to the Pool Leader whereas notional limits are loaded on each operating unit  to manage infra-day activity.